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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In her latest Indian Express column on India’s urban policy challenges, Isher Ahluwalia describes the success of property tax reforms in greater Bangalore. It’s an interesting case of policy improvement through opt-in.

Prior to 2000, tax officials in Bangalore inspected properties and issued a notice of the tax payable, based on what they determined to be a reasonable expectation of rent. Ahluwalia notes that the tax officials had a high degree of discretion in defining “reasonable” rents—a situation that “created an environment for corruption and litigation.”

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The Pension Real Estate Association (PREA) recently interviewed Paul about charter cities.

Here are some excerpts:

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Charter Cities was recently reminded of an excellent policy proposal from Shang-Jin Wei, an economics professor at Columbia. At the International Anti-Corruption Conference in 1999, Wei proposed Special Governance Zones (SGZs) as a way to catalyze reforms in countries where broad-based national reform efforts had failed to effectively fight corruption.

Wei’s proposal is just as relevant today as it was in 1999. Many countries, such as India and Greece (gated), that are visibly struggling to battle corruption could be well-served by the type of SGZ reforms that Wei suggests.

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Rolf Dobelli talks to Paul about charter cities in this Zurich.Minds interview. They consider the importance of rules—both formal laws and informal norms—to catch-up growth in the developing world. They also discuss the part of the Honduran government’s development strategy that is based on the charter cities concept. Dobelli asks about the potential role for foreign governments in bringing transparency and accountability to the governance of a special development region in Honduras. He ends by asking Paul about his longer term vision.

Rolf: Twenty years out, what’s your dream?

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Tim Harford has a thought-provoking piece in the Financial Times* today. The column covers the growing importance of cities in general and considers the charter cities proposal in particular.

Because a city is costly to build, much of its infrastructure will last for decades. Romer argues that investors will not bite without a steady (Canadian? Norwegian?) hand on the tiller.

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The Gates Foundation recently asked Bryan Caplan, an economics professor at George Mason University, to write a memo that lays out the case for charter cities. Caplan begins by pointing out that redistribution, by itself, cannot overcome poverty in the developing world.

Anyone serious about reducing world poverty must come to grips with a single key fact: Redistribution from rich to poor has not and cannot solve more than a tiny fraction of the problem. Even if you could perfectly equalize income in Third World nations with zero effect on production, the citizens of Third World countries would remain mired in poverty. Take Bangladesh. With a GDP of $256B and a population of 164M, equalization would at best give each citizen an income of $1561 per year – about $4 a day. Countries do not overcome poverty by sharing production more equally. They overcome poverty by increasing production – what economists call “economic growth.”

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