2011-10-31

Former "Seasteaders" Come Ashore To Start Libertarian Utopias In Honduran Jungle

Forgoing the plan to build independent floating cities away from chafing laws, some libertarians--led by Milton Friedman’s grandson, no less--have found something better: desperate countries willing to allow the founding of autonomous libertarian cities within their borders.

The seasteader-in-chief is headed ashore. Patri Friedman (that’s Milton Friedman's grandson to you), who stepped down as the chief executive of the Peter Thiel-backed Seasteading Institute in August, has resurfaced as the CEO of a new for-profit enterprise named Future Cities Development Inc., which aims to create new cities from scratch (on land this time) governed by "cutting-edge legal systems." The startup may have found its first taker in Honduras, whose government amended its constitution in January to permit the creation of special autonomous zones exempt from local and federal laws. Future Cities has signed a non-binding memorandum of understanding to build a city in one such zone starting next year.

Seasteading, i.e. the creation of sovereign nations floating offshore, is enshrined in libertarian thought as an end-run around the constraints of stodgy nation-states. The idea has received plenty of (mocking) mainstream coverage, most recently in a Details profile of Thiel, in which Friedman outlined the new startup he had in mind:

One potential model is something Friedman calls Appletopia: A corporation, such as Apple, “starts a country as a business. The more desirable the country, the more valuable the real estate,” Friedman says.

Future Cities follows this approach, describing its mission as bringing “Silicon Valley’s spirit of innovation to the implementation of cutting-edge legal systems in new cities," most likely in the role of the cities’ master developer. Citing laissez-faire entrepots such as Hong Kong and Singapore as examples, the company’s founders believe that strong property rights and business-friendly regulation are key to creating jobs, stimulating investment, and lifting millions out of poverty, a la China’s special economic zones. "The evidence is much stronger," Friedman replies when asked if he’s building another libertarian utopia, "that rule of law, fairness, and a lack of corruption leads to more economic growth than low taxes." (Not that they’re mutually exclusive, as Singapore demonstrates.)

Instead of seasteading, Future Cities is modeling itself on “charter cities.” The brainchild of New York University economist Paul Romer (read his thoughts on FCI here), a charter city combines a host nation’s vacant land (in this case, Honduras) with the legal system and institutions of another (e.g. Canada) and residents drawn from anywhere. Romer’s central insight is that good governance is transplantable--rather than wait for a basket case nation to come around begging, a charter city could help show it the way, as Hong Kong did for Deng Xiaoping.

Romer spent two years jetting across Africa fruitlessly searching for takers before aides to Honduran president Porfirio Lobo stumbled across his idea last fall. In February, the Honduran Congress voted to amend the constitution to create Special Development Regions (called REDs) in order to implement his ideas. But it wasn’t an exclusive deal. Romer says he first heard of FCD a month ago when its proposal was brought before the committee which oversees the REDs (of which Romer is a member).

Future Cities’ marketing materials quote Romer repeatedly and explicitly cites charter cities as “our model.” For his part, Romer emphasizes that he has no involvement with FCD and cites his nonprofit think tank’s strict conflict-of-interest policy. While Romer shares the belief that neoliberal globalization can be harnessed toward humanitarian ends by creating work, skills, and a path out of poverty where there currently is none, he has no intentions of making money while doing it. (Friedman says his company is "inspired" by Romer’s model and didn’t mean to imply there was any relationship between the two.)

It remains to be seen whether FCD’s non-binding agreement with Honduras will proceed, or whether its leaders will elect to stick with Romer’s charter city for now. One thing that seems certain is that the FCD’s interest in Honduras--the recent site of a coup, human rights abuses, and land seizures--will bring a fresh round of criticism to the charter city model. While Romer has been battling unflattering comparisons to colonialism since he first presented the idea, FCD’s sudden interest in Honduras reads like an epilogue to The Shock Doctrine, Naomi Klein’s 2007 book tracing the checkered history of free market reforms in the wake of political crises (think 1970s Chile, 1990s Russia or 2000s Iraq). The Doctrine’s godfathers, in Klein’s telling, are Milton Friedman and his disciples in the University of Chicago’s economics department. Now it appears his grandson is offering to experiment with the legal system of one of Latin America’s poorest countries.

Friedman’s board members include Giancarlo Ibárgüen, president of University Francisco Marroquín in Guatemala City, Guatemala, a hotbed of libertarian thought where the library is named after Austrian economist Ludwig von Mises and busts of Friedrich Hayek and Milton Friedman decorate the campus. Ibárgüen is also a cofounder of the recently announced Free Cities Institute with Michael Strong, an associate (and arch-defender) of Whole Foods CEO John Mackey.

"The real audience that matters most is not the Naomi Kleins of the old," Patri Friedman says defiantly, "but the people of Honduras. If we can create jobs" and build a better city than the ones they have, "they’ll be happy."

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27 Comments

  • Dan Dascalescu

    Unsurprisingly, the Honduran Supreme Court ruled on 2012-Oct-19 that the decree that allowed the creation of ‘private cities’, with their own laws and police, was unconstitutional.
    Special development regions (Regiones Especiales de Desarrollo) are now illegal.

  • Alan C

    Welcome to Conservatives on Fire. My name is Jim Gourdie. I am not an
    expert in political science, nor an economist and I am certainly no
    pundit. I’m just an ordinary American who is delighted to see that
    conservatives are  truly on fire for the first time in decades.

  • marcdepiolenc

    Obviously an opportunity like this one - created with a stroke of a legislative pen - can be eliminated just as easily and quickly. I'm a seasteading advocate from the 1970s, before the term was coined, but both logic and experience indicate that a seasteading project is going to need a staging area on dry land at the start. That's the role I see for enclaves like the one proposed. To do their job, they only have to remain free long enough to give birth to seasteads in international waters. Once that happens, the possibility of the local host government pulling a Lenin-style NEP and grabbing all that the entrepreneurs have built becomes less of a threat, in that the entrepreneurs can demolish their shore installations and head for the high seas, taking most of their assets - most especially themselves - with them.

  • marcdepiolenc

    "Colonialism" my foot!
    A colonial power takes over an already-populated territory and its population and harnesses them to the colonial power's own economy, typically as a producer of raw materials and an importer of manufactured goods from the colonial power. It should be pretty obvious by now that this project is nothing like that. Imprimis, they're building de novo on uninhabited land - so no takeover or eviction of local population. Second, the city will have its own economy which will develop according to what the inhabitants deem most profitable to them. It might end up being dedicated entirely to industrial outsourcing, it might be partly agricultural or agricultural processing, or it might develop its own development formula which nobody has yet thought of. Freedom is the antithesis of central planning...and of colonialism.

  • mikesmullin

    this is just one of many communities being started libertarians who can't wait for government to catch up with the future they have envisioned. Since the financial crisis, Greece has news covering various communities, and there are several cropping up in various parts of the United States, and I'm sure other countries. Names like "Living Off The Grid", "Paulville, Texas", "Ecovillage", and many many more I can't immediately recall but am following on various social networks. Unique new building methods and materials, upcycling, direct democracy, etc. New technologies and methods of agriculture like aquaponics, and heavy use of web technology and social media. i love seeing these. maybe one day i will move to one.

  • Mike

    "Romer spent two years jetting across Africa fruitlessly searching for takers"

    The "takers" being the "desperate countries" mentioned in the opener?  Maybe Western governments are handing a lot more money to African leaders than I previously thought.

  • macsnafu

    This sounds very interesting.  But I wonder how dedicated the Honduran government will be to allowing such freedom to exist, especially if any particular plan is successful. 

  • Corey John Richardson

    These communities have been attempted, and with some success. The problem always arises when they are successful and the surrounding wolves use force to usurp the libertarian gains.... Think Ayn Rand's Atlas Shrugged. The temptation to gain freely from others' hard work seems to irresistible. Thanks for the reporting.

  • Stuki

    One Charter City is better than none, but to get the most out of competitive governance, Honduras really ought to champion bootstrapping several such entities simultaneously. Then see which ones turn out to be the most successful. While Techutopian libertarians are the torch bearers for this philosophy now, simply picking one of them, even one as well versed as Friedman, shortchanges the ultimate potential for developments such as these.

  • creativ411

    I don't always know what to think when I read pieces like this, because it feels as if there is more than one editor, or maybe they have one editor, but he has an alter-ego personality that takes over on Mondays and Wednesdays in trying to become the next Ode or Mother Jones?

    Perhaps the name of your magazine should be called Slow Company, or perhaps Pinko Business, or Wealth-envy Magazine?

    Either you are pro-capitalism and free-markets, or you are not. Why bother reporting on creativity and innovation in business when you publish stuff like this?  I don't get it.

    Thanks Michael Strong for such a thoughtful response.

  • michaelstrong

    The third to last paragraph of Mr. Lindsay's article contains several unfortunate confusions.  To clarify matters sentence by sentence:

    "It remains to be seen whether FCD’s non-binding agreement with Honduras will proceed, or whether its leaders will elect to stick with Romer’s charter city for now."

    The Honduran government has passed a constitutional statute based in part (but not exclusively) on Romer's ideas.  This statute allows any entity, for profit, non-profit, or government to propose a plan for a Special Development Region in Honduras.  Thus whether or not FCD proposes a plan that is accepted by the Honduran government, its leaders are "sticking" with the constitutional statute they passed which was influenced by Romer but which is not "Romer's charter city."  The either/or of Mr. Lindsay's sentence is thus misleading.

    "One thing that seems certain is that the FCD’s interest in Honduras--the recent site of a coup, human rights abuses, and land seizures--will bring a fresh round of criticism to the charter city model."

    While Mr. Lindsay is correct to point to human rights abuses and land seizures in Honduras, it is unfortunate that he continues to refer to a "coup."  The official "Report to the Commission on Truth and Reconciliation:  Honduras," refers to the event as a "constitutional crisis" because of a lack of constitutional clarity regarding what should have been done in a situation in which a president (Zelaya) was clearly acting unconstitutionally. For instance, they state:

    "Much of the problem in the Honduran case stemmed from unclear legal and especially constitutional text. This contributed to the crisis by creating a lack of clarity about when the president could be removed, how the removal process would work, and what role institutions such as the Armed Forces, Congress, and the courts should play in the process.  We recommend a series of constitutional reforms to clarify these processes and roles."  
     
    It is important for American audiences to understand that the Honduran Supreme Court and the Honduran Congress had formally decided to remove Zelaya from office.  If both the U.S. Supreme Court and the U.S. Congress had decided to remove a president from office would we call it a "coup"?

    Then Mr. Lindsay brings up Naomi Klein,

     "While Romer has been battling unflattering comparisons to colonialism since he first presented the idea, FCD’s sudden interest in Honduras reads like an epilogue to The Shock Doctrine, Naomi Klein's 2007 book tracing the checkered history of free market reforms in the wake of political crises (think 1970s Chile, 1990s Russia or 2000s Iraq)."

    It is impossible to correct all of Ms. Klein's misunderstandings in a short space, but it is important to realize two especially relevant facts:  

    1.  There is a correlation between economic freedom and prosperity:  All prosperous nations have a significant degree of economic freedom, all poor countries do not.  Thus, for instance, until recently Scandinavian nations were more "free market" than all developing world nations.  For instance, it is easier to open a business, or to fire an employee, in Denmark than in almost any developing nation.  The major recent exception is, well, Chile, which by some measures is now more free market than is the U.S.  It is also the most prosperous Latin American nation, a middle income rather than a poor nation, with roughly the same GDP per capita as Russia.

    2.  Since the 1990s there has been an increasing recognition among economists of the importance of legal systems as a necessary precondition to successful market economies.  The Austrian economists Mises and Hayek understood this fifty years ago, but mainstream development economics only discovered this in the 1990s after the failure by Sachs and others to take the role of legal systems into account in the former East bloc economies.  This is relevant because the Honduran legislation is first and foremost about installing a new legal system within the Special Development Regions.  Thus insofar as the mathematical economists (Chicago and otherwise) bear some responsibility for not understanding the role of legal institutions adequately in the 1990s, the Honduran leadership, as well as Romer, are at the cutting-edge of "getting it right."

    Finally, Mr.Lindsay states, "Now it appears his grandson is offering to experiment with the legal system of one of Latin America's poorest countries."  Patri Friedman is not "offering to experiment with the legal system of Honduras."  The Honduran government has created a process through which they will evaluate proposals to create enclaves with different legal systems within Honduras. The legal system of Honduras as a whole will remain untouched.  If one or more Special Development Region brings prosperity to Honduras, or a region within Honduras, how is that not a good thing?

    Finally, it is noteworthy that in 2003 the government of Dubai hired a retired British commercial law judge to administer British common law on 110 acres of soil in the Dubai International Financial Centre (DIFC).  After conducting research on legal systems most suitable for financial centers, and noting that London, New York, Chicago, Hong Kong, Singapore, and Sydney all ran British common law, they decided to allow for an enclave with a different legal system on those 110 acres (the rest of UAE is Sharia law).  The result is that a piece of small bit of barren desert became in eight years the sixteenth most important financial center on earth.  

    May Honduras succeed as well or better.

  • Marcia Espinal

    Funny how things get spun to look like great ideas when in reality this is just another case of transnationals/wealthy foreigners looking for poor countries to exploit for profit. As a Honduran living in Honduras, I know what's behind this "utopic" society and trust me it ain't pretty. How can you sustain a society in a country with a homicide rate of over 82 per 100K, 90-plus percent impunity rate, and an overall educational level that means people are not prepared for much more than basic manual labor? Our government has more important things they should be focusing on rather than selling our country to the highest bidder. President Lobo should clean house before having guests over. Breaks my little Honduran heart to see stories like this...

  • Alex

    As an American working in Honduras I must agree with you. Allan (who responded) fails to understand that many companies such as Nike have settled in Honduras, sadly simply to profit off of unskilled laborers and children. And Anonymous is responding like a typical ignorant American.  The Honduran government needs to focus on its own infrastructure, etc before allowing others to come in and profit off of the people of Honduras.

  • Anonymous

    Your corrupt and ineffectual government has completely FAILED at any sort of progress. You should be happy that outsiders are trying to help.

  • allanhenderson

    If you want to raise the wages of unskilled laborers, you have to make them more productive by giving them access to more and better capital goods. But successful capitalists won't build factories in places where inadequate physical infrastructure and cumbersome government institutions raise their cost of doing business to a level at which they can't make a profit on the world market. If special economic zones can be used to create islands of excellent infrastructure and institutions in Honduras, capital will pour in to them from all over the world, the productivity and wages of Honduran workers will rise, and a new engine of material progress will begin to turn.