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Coming Soon: A Privately Run City To Create Development In The Developing World

A group of businessmen are building a city from scratch in Honduras to overcome the country’s corruption and poor infrastructure. Does it make sense to let money hungry investors take over the government’s job?

Honduras is set to play SimCity for real, albeit without the economist who devised the rules of the game. Last Tuesday, the government signed an agreement with private investors led by Michael Strong—a libertarian entrepreneur and close associate of Whole Foods co-founder and CEO John Mackey—to construct a city-from-scratch in one of at least three special development regions ("las Regiones Especiales de Desarrollo" or "REDs") scattered around the country.

REDs possess the legal right to establish—or outsource to foreign governments and companies as necessary—their own hospitals, schools, judges, and even police, all independent of Honduran law. The first is for profit, and if its founders have their way, it will look and feel a little like the Mosquito Coast’s answer to Austin.

The REDs are the brainchild of Paul Romer, the New York University economist who has proposed building "charter cities" as a solution to endemic poverty. Romer believes that importing sound laws and policies into small corners of badly run countries will help leaders reform their governments from the inside-out. Honduras certainly qualifies—the original banana republic is still grappling with the political fallout of a 2009 coup while cocaine traffickers have pushed its murder rate to the highest in the world.

In early 2011, aides to Honduran president Porfirio Lobo invited Romer to the capital of Tegucigalpa to make his case to Congress. Within weeks, Congress passed a constitutional amendment granting Lobo’s government the power to create and administer the REDs.

They won’t be built in Romer’s image, however. The Lobo government has instead signed a deal with the MKG Group, a consortium of investors led by Strong that intends to spend $15 million to begin building basic infrastructure. It appears Romer was never consulted.

On Friday night, he published an open letter to Lobo asking that he not proceed with the formal appointment of a five-person "transparency commission" to oversee the RED, of which Romer would be chairman. In effect, he is asking for permission to resign from his own creation. Lobo’s aides told The Guardian that Romer is overreacting, and that nothing can go ahead until the Honduran Supreme Court rules on the project’s constitutionality—which may take anywhere from a week to a decade.

With Romer having second thoughts, the spotlight shifts to Michael Strong, who I met with in February to discuss what his version of a RED would look like if it were actually built. At the time, it seemed unlikely—a few weeks later, Lobo’s chief of staff Octavio Sanchez told me point-blank in the presence of Romer’s deputy that Strong would never receive the legal right to run a RED—but he was optimistic.

Prior to starting MKG, Strong co-founded a movement named FLOW ("Freedom Lights Our World") and wrote an entrepreneurial manifesto with Whole Foods’ John Mackey. More recently, he joined the board of the Seasteading Institute (whose founder, Patri Friedman, has started his own for-profit company with the stated aim of building cities in Honduras) and co-founded the Free Cities Institute, a think tank based at the Universidad Francisco Marroquín in Guatemala. (UFM, which I visited last spring, has a library named after Austrian economist Ludwig von Mises and a bas-relief of Atlas shrugging at the entrance to its business school.)

While Romer imagined his charter cities as Hong Kong circa 1950—filled with sweatshops beginning the long, hard climb to cleaner work and better pay—Strong envisions something closer to Bangalore-meets-Austin, with locals working in Spanish-language call centers and business-process-outsourcing (BPO) shops while jump-starting a local software industry with an influx of Americans.

"I’ve spent a lot of my life in places like Austin and San Francisco—cultural and creative hotbeds," Strong said. "One of the people I know is a Honduran software entrepreneur who would love to have a much more robust ecosystem for software companies in Honduras. But in order to get software guys to go down to there, you need cool restaurants and music places. They’re not going to go if it’s factories and so forth."

While Strong readily conceded this aim was "aspirational," he insisted that locals were much more receptive to clean work for good pay than a wholesale expansion of the maquiladora sweatshops, which mainly produce textiles. He also plans to recruit a number of educational institutions—including vocational and charter schools (which he has founded in the past)—to create "an education enclave." "Good education institutions increase land value, and they’re a huge attractor," he said.

In the short run, however, MKG will focus its efforts on building affordable housing and attracting employers to the first half-square mile of the city, which will begin construction sometime in the next six months. Strong told the AP last Wednesday that tenants have yet to sign on, but that he and his [undisclosed] investors hope to have two or three within 18 months.

While MKG may have been awarded the first RED, it certainly won’t be the last project of its kind. Congressional president Juan Hernandez told the AP that two other sites have already been chosen—one in the Sula Valley in northern Honduras, and another in the south—but the agency tasked with implementing the RED has at least 10 potential sites under consideration. The question now is: Who’s next?

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