Here at Charter Cities, we’ve received several requests for comment on recent press reports of an agreement with investors to develop the Honduran Special Development Regions (known as REDs, following the Spanish acronym). We learned of these agreements from the media and have no knowledge of their terms, so we’re unable to offer any comment about them.

Back in December 2011, the President of Honduras appointed George Akerlof, Nancy Birdsall, Boon-Hwee Ong, Harry Strachan, and me (Paul Romer) to the Transparency Commission established by the RED legislation to oversee the integrity of governance in the REDs.

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In the 1960s, economic development experts spoke of the benefits from letting each country develop its own technology. By the 1980s, it was clear how foolish it was to ask each country to reinvent each technology. Countries began experimenting with higher degrees of economic openness, leveraging technology and competition from abroad to drive development and reduce poverty.

Yet today, discussions about economic development still presume that each country must reinvent a local system of governance, with police, judges, and prosecutors who are strong enough to enforce the law yet accountable enough to obey it themselves. Honduras is now challenging this presumption. In a recent post for NPR’s Planet Money blog, we discuss Honduras’s bold new approach. Here’s an excerpt:

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How could Honduras, the original banana republic, reform a political and economic system that kept nearly two-thirds of its people in grim poverty?

NPR’s global economics correspondent, Adam Davidson, writes about charter cities and the Honduran Special Development Region in this week’s New York Times Magazine. As always, Adam’s column is well-worth reading in its entirety. The piece does raise a couple of questions about the special zone project in Honduras, which we address below.

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Canadian development assistance should reflect the central role that cities will play in the growth and development of less developed regions – places where Canada can not only help to improve governance in existing cities but also start new ones. That is the case that Brian Lee Crowley makes in a recent oped in the Ottawa Citizen.

Simply moving a worker from a developing country to a developed one like Canada or the U.S. increases their earning power several times over. Moving from chaotic disorganized societies to ones with strong institutions such as functioning infrastructure, police, courts and the rule of law is the most powerful anti-poverty tool there is. But not everyone can change countries.

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Jeremy Torobin, economics correspondent for The Globe and Mail, has a column on the charter cities concept and the effort in Honduras to build a new city in an independent reform zone. Here’s an excerpt:

And there is a strong argument in the ‘enlightened self-interest’ category, aside from Prof. Romer’s projections about the impact on global output, or the potential windfall for the Canadian companies that might build some of the infrastructure for the new cities or, eventually, have billions more overseas customers who can afford to buy their products. Namely, Canada and all advanced economies have a stake in ensuring the massive urbanization occurring this century actually makes people’s lives better instead of creating giant new filthy, chaotic, overcrowded, lawless slums.

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Paul Romer and Octavio Sanchez, chief of staff to the President of Honduras, have an oped in this morning’s Globe & Mail. They describe Honduran efforts to establish a new reform zone and the ways in which Canada can participate.

With the near unanimous support of its Congress, Honduras recently defined a new legal entity: la Región Especial de Desarrollo. A RED is an independent reform zone intended to offer jobs and safety to families who lack a good alternative; officials in the RED will be able to partner with foreign governments in critical areas such as policing, jurisprudence and transparency. By participating, Canada can lead an innovative approach to development assistance, an approach that tackles the primary roadblock to prosperity in the developing world: weak governance.

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Emma An interviewed Paul about charter cities during his recent visit to the Fung Global Institute in Hong Kong.

Romer suggests that a developing country should set aside a plot of land large enough to accommodate a city of millions, give the new entity flexibility to govern itself as China has done in Hong Kong, including allowing it to pass its own constitutional-like charter like the Basic Law of Hong Kong. The new city would be administered by a third-party “guarantor” country to ensure that the new rules are respected by all parties, reminiscent of what Britain did in Hong Kong before the 1997 handover.

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At the December 2011 gathering of ZURICH.MINDS, Paul presented a framework for thinking about human progress. He began by pointing out that an idea has a value that is proportional to the number of people who use it, and that our ability to share ideas is therefore the driving force behind economic growth, globalization, and urbanization.

But in thinking about the discovery of new ideas, Paul encouraged the audience to think about not just new technologies but also new rules — the laws and norms that govern human interaction. He stressed that it is the coevolution of technologies and rules, rather than technologies alone, that drives human progress. More often than not, it is an inability to adopt new rules, rather than an inability to discover new technologies, that holds us back. He went on to suggest that the use of jurisdictional start-ups, such as Deng’s use of SEZs in China or Charles II’s grant of land to William Penn in the American colonies, can help society’s experiment with beneficial reforms in a coercion-free manner.

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The government of Honduras recently passed a constitutional statute that defines the governance structure for a new special reform zone, known locally as la Región Especial de Desarrollo (RED). The statute stipulates that the courts in the RED are independent from the existing courts in Honduras. Judicial nominees in the RED will be subject to the approval of the Honduran National Congress, but the RED government is free to draw on judicial nominees from all over the world, giving it access to a relatively deep pool of judicial talent.

This is the approach that China used when it resumed sovereign control of Hong Kong and needed to establish a new Supreme Court for the Hong Kong Special Administrative Region. To guarantee the credibility and independence of this new body, China, through a treaty with Britain, agreed that justices for this new court could be recruited from other common law jurisdictions. The Court of Final Appeal in Hong Kong includes judges from New Zealand and South Africa, as well a former Chief Justice of the Supreme Court in Australia.

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The Economist magazine recently ran a piece on the Honduran government’s efforts to establish a city-scale reform zone, or la Región Especial de Desarrollo (RED). The article provides an excellent overview of the progress that the Honduran government has made to date. Below, you’ll find responses to a few of the questions we’ve received in response to the article.

Q: Will the RED rely exclusively on private security?
A: Though the RED has the option to make use of private security, policing services will not come exclusively or even primarily from private entities. The RED government will establish an independent police force and can use several public channels to ensure fair and effective policing, including the option of enlisting a trusted foreign police authority to train officers and hold police leadership accountable.

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The Honduran government, led by President Porfirio Lobo and Congressional President Juan Orlando Hernandez, is working to establish a reform zone based in part on the charter cities concept. In July, the Honduran National Congress passed a constitutional statute that defines the governance structure for la Región Especial de Desarrollo (RED), or the Special Development Region.

The Honduran Congress identified as a key feature of this governance structure a new entity known as the Transparency Commission. As its name suggests, the Commission plays an important role in ensuring that governance in the RED is effective and transparent.

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For the past few months, Charter Cities has been quietly advising the government of Honduras as it works to establish a new city-scale reform zone, known locally as la Región Especial de Desarrollo (RED). Over the next couple of weeks, we hope to post some updates on the progress in Honduras.

In the meantime, please have a look at www.red.hn, a website started by a Presidential committee known as CORED. The site has links to relevant legislation as well as updates on the project.

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