2011-11-03

Co.Exist

Paul Romer On Honduras's Charter Cities

The inventor of the concept of cities with special laws designed to spur the lagging economies of failing states talks about the latest attempts by the Free Cities Institute to found a charter city in Central America.

NYU economist Paul Romer, the originator of the idea of Charter Cities, is working with the Honduran government to help make sure the project there is a success. We spoke to him about his involvement whether Friedman’s group was carrying on his vision, and his hopes for the future of the Charter Cities project.

When you encouraged Honduran officials to pass the constitutional amendment that will make Charter Cities possible there, did you expect there would be competition to create cities from other groups? Do you believe competition in this case is a good thing?

Competition is good. At the level of cities, the government of Honduras is the only entity that can create a RED in Honduras, but we could soon see competition between different countries. They could develop a variety of city-scale reform zones that compete with each other. At the level of policy advice, many organizations and individuals can compete to offer advice to the government of Honduras or any other government. At the level of individual firms, once the government establishes a RED, many firms will compete to invest there or hire workers there.

But to take advantage of the good that competition has to offer, it must take place in the "shadow of the law." Good law includes a commitment to transparency and an insistence that no person or entity with a conflict of interest should have influence on public policy decisions. The Honduran Congress created the Transparency Commission to make sure that everyone could have confidence hidden conflicts had not biased the policy decisions needed to create a durable foundation for development in the RED.

How do your aims differ from FCD or the Free Cities Institute? Both groups quote you extensively, and the FCD brochure explicitly describes charter cities as "our model for self-determining cities." Would you say they’re following that model as you imagined it?

I honestly don’t know what their aims are. Unfortunately, the prominent display of my name in their materials suggests to some readers that I am somehow involved or have inside information, neither of which is true. I have seen the agreement that FCD signed, which is very general. Beyond this all I have to go on is small amount of information that FCD has made public, including the document they are circulating. As for Free Cities Institute, it is not yet clear whether it will try to influence public policy decisions or support the work of its affiliated for-profit entities.

Have you been approached by either group? If so, did they ask you to work with them or invest in them?

Charter Cities has been approached in many different ways, by many people acting as individuals or as representatives of organizations. Because they will be critical to the success of the RED, the government of Honduras welcomes interest from potential investors and we’re happy to point them to publicly available details of the RED project. But the only entity that we advise is the Honduran government and our conflict of interest policy strictly prohibits any investment interest so none has ever been offered.

How long have you been aware of Future Cities Development Inc.? And how long have you been aware of the Free Cities Institute?

Since the fall of 2010, people associated with Charter Cities, a not-for-profit think tank that I founded, have been providing pro bono advice to the government of Honduras.

Charter Cities has a very strict conflict of interest policy. No one from Charter Cities, can have any financial interest in any project in Honduras; no one can accept consulting fees from the Honduran government; no one can accept reimbursement for travel expenses or accommodations; no one can provide advice to any for-profit entity that wants to invest in Honduras. I do not collect any salary from Charter Cities but as its president, these restrictions all apply with full force to me.

After the Honduran Congress amended its constitution to allow for REDs, Charter Cities has been approached by a number of people, many of whom subsequently have established ownership positions in for-profit entities such as Future Cities Development. Because of our concern about potential conflicts, we have been careful to keep our distance.

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