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Romer’s “Resignation” Adds Credibility to the Honduran Project

October 3, 2012

That’s not the story the NYTimes will tell. At least not in its ode to Romer’s ouster. But the truth, as they say, is complicated. What’s clear is that there was never any commission for Romer to resign from. Let me say that again: there was never a commission. True, some noises were made, discussions held, ideas floated, but in the end the alleged commission and Romer’s choice in its members was nothing more than that–a suggestion. If someone provides me with evidence otherwise, I will retract that assertion. MGK–Michael Strong’s development firm–has posted a time line with citations that tell the story. Do read the whole thing. Some key points:

  • March 17, 2011: An advisory commission called CORED (Comision Coordinara de las Regiones Especiales de Desarrollo) is created by publication in the official gazette. Ricardo Maduro, Toribio Aguilera, Jorge Ramon Hernandez, Mr. Sanchez, and Paul Romer are subsequently appointed to CORED. While CORED apparently never actually meets, its mission is completed with the passage of the Constitutional Statute in July 2011.
  • July 29, 2011: The Constitutional Statute authorizing the creation of REDs is passed in Congress with over 90% voting in favor. As of September 4, 2012 the Government of Honduras has stated that “Any authority, rights or other ability that CORED had to influence or to be involved in the creation or management of SDRs in any way, expired completely upon the passage of the Constitutional Statute that defined all the currently relevant entities.”
    Source: Coalianza/Octavio Sanchez
  • August 2, 2011: The domain http://www.red.hn was created by the current Registrant Organization. As of September 22, 2012 with the last update as of July 8, 2012 the whois registry for http://www.red.hn shows the Registrant Organization to be “CORED” with a non-Honduran address of PO Box 1707, Los Altos, California and a non-Honduran phone number(650-762-6619) that corresponds to the San Francisco Bay Area.
    Source: “Whois red hn 9-22-12″ (attached file), http://en.wikipedia.org/wiki/Area_code_650
  • On or before October 14, 2011: A website appeared at http://www.red.hn that presented itself as the official CORED website. The initial post is titled “What is CORED?” and includes the statement: “CORED will post information to this website for anyone interested in tracking the progress toward the first RED.” The Honduran government did not create or control the website. As of September 4, 2012 the Government of Honduras has stated that “No official website for the Special Development Regions or for the Comision para las Regiones Especiales de Desarollo (CORED) has been created by any entity of the Government of Honduras.”Source: “red.hn Snapshot 12-13-11″ (attached file), Coalianza/Octavio Sanchez
  • November 3, 2011: The http://www.red.hn website posts “Economic Opportunities in the RED” in which the following statement is made: “President Lobo must first appoint the initial members of the Transparency Commission and the governor of the RED.” This statement is plainly false and not based on Honduran law as Article 78 of the Constitutional Statute makes clear: “Article 78.- In preparing the investment and development plan of an SDR, memorandums of understanding, trusts, or preparatory contracts for a public-private partnership or an international treaty may be entered. These will be executed with the SDR’s Transparency Commission, or before the formation of such board, with the organization responsible for public-private partnership in the country. In these cases it is not necessary to indicate the territorial boundaries of the SDR that wants to be created.”
  • December 8, 2011: The http://www.red.hn website posts that “President Lobo Appoints Initial Members of the Transparency Commission.” This new entry coincides precisely with the December 8, 2011 release of the December 10, 2011 online edition of The Economist. This edition contains a story titled “Hong Kong in Honduras” which links to http://www.red.hn as the only reference in the article for the claim that a Transparency Commission has been created.
    Source: “red.hn Snapshot 12-13-11″ (attached file), http://www.economist.com/node/21541392
  • December 13. 2011: The Charter Cities website posts “President Lobo Announces Transparency Commission” even though no announcement from President Lobo is referenced or linked. The language and formatting appear similar to the earlier announcement appearing on the http://www.red.hn website.
    Source: http://chartercities.org/blog/219/president-lobo-announces-transparency-commission
  • September 4, 2012: The Honduran government signs and announces an MOU signed with Grupo MGK. Shortly thereafter Paul Romer publicly circulates a “resignation letter” from a Transparency Commission that does not exist. As of September 4, 2012 the Government of Honduras has stated that “The Transparency Commission has not been created.”
    Sources: Coalianza/Octavio Sanchez

It’s understandable that an academic as respected as Romer would want to save face. With his TED talks, articles and other appearances, a lot of the establishment has been listening. He’s on the short list for the Nobel Prize. And it’s deserved. While he has brought great attention and legitimacy to the Honduran project, and for that we should all be thankful, he is nevertheless myopic when it comes to developing and executing on the core idea. But what baffles me most of all is that he wants to make trouble and squirt black ink like an invertebrate squid as he exits.

Last July, the 4th as it happens, I attended a conference in Guatemala on the Honduran RED effort. Octavio Sanchez and some key members from Coalianza were present. On the topic of sourcing investment, I asked them what their biggest obstacles were. Was it that the capital required is too large to get a commitment? Was it difficult to market the idea? Or did they have trouble meeting with investors overseas? They laughed and said all three. With some further discussion, it turned out, the problem was what I saw as the Romer problem: the first $50 billion is always the hardest. The scale at which Romer conceived the idea was ludicrous. No wonder it was difficult to move the project forward. After all, it’s hard to raise $1 billion for a U.S. investment, let alone $50 billion for something that has never been done before in a region fraught with uncertainty.

Fortunately, that meeting in Guatemala led to further conversations on ways to bootstrap and scale the project up from reasonable initial investments, orders of magnitude smaller. And it also led the momentum away from having an outside country manage or oversee the charter city’s executive function, another of Romer’s implausible proposals.

So from what I can tell, and here I admit that I don’t have all the facts, Romer was providing a lot of vision, but he was short on the details and unrealistic in his expectations. I think his ideas are admirable. His talk at the Long Now Foundation is the best I’ve ever heard on the subject of competitive governance. But with all due respect, it’d be great if he would exit the stage like a gentleman.

Let me add for disclosure that I have no affiliation beyond friendship with the MGK Group. But take that bias as you may.

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8 Comments leave one →
  1. October 3, 2012 6:13 pm

    I didn’t find Romer particularly compelling. He brought nothing new to the table, and, like most academics, wanted to avoid certain issues. In his mind, a city full of people with no skills and 50 I.Q.s would be just as successful as anybody else as long as they followed his rules.
    I hope the MGK Group has gotten some easily defendable land. Governments sometimes renege, despite rock solid legal claims.

  2. peter permalink
    October 4, 2012 5:06 pm

    I never saw the value of Romer (or non-libertarian academics in general). It seems to me you get more cred with a moneyed backer who put skin in the project. Some HK real estate tycoon. That’s the only cred that would work with potential investors; what do they care about an academic? I could see some media benefit, but nothing beyond.

    Just saw the news today, wondering in retrospect whether it makes sense to even contract with uncontractable countries. Again, until the project can lop off a piece of Switzerland or Singapore, I’m not seeing major investors feeling safe.

    Then, of course, there’s Patri’s direction.

  3. Rocketman permalink
    October 5, 2012 7:25 pm

    I’ve just read that by a 4 to 1 vote, the Honduras Constitutional committee of the Supreme Court has declared that privately run cities in Honduras are “unconstitutional”. The full 15 member Supreme Court will be ruling on it within the next 15 days. It seems that MGK got the cart before the horse when they started all of their grandious plans. First make sure that you can even build the cities before you start seeking people to fund it.

  4. October 16, 2012 2:19 pm

    Rocketman wrote: “It seems that MGK got the cart before the horse when they started all of their grandious plans. First make sure that you can even build the cities before you start seeking people to fund it.”

    Sometimes you need the investors on board before the contractors will design you a serious plan. If you have several serious contractors who have worked on this sort of scale before, and they show a tentative interest in working on the project, with lack of funds being their only objection, then you approach the “chicken and egg” problem as best you can and just try to do it. A New Hong Kong, done right, with none of the social unfreedom of Singapore (Singapore has no jury trial system, little market predictability for nonconformist innovation, no free speech, no freedom of assembly), and a functional PROPER jury trial system (and resulting emergent market), WOULD rapidly make a city of even IQ 80 people into a paradise: assuming you had bigger guns (or better defense robots, bio-deterrents, etc…) than all the surrounding governments who would then be attempting to steal every last dime you had generated.

    A “cambrian explosion in government” will simply be a cambrian explosion in tyranny, if it’s done wrong. Now, of course, the subtitle of this blog implies it being done right, so I’ll give them the benefit of the doubt that they understand the following sentence: A cambrian explosion in government begins with a cambrian explosion in gracefully-scaling defensive technology, from the individual to the protectorate that needs defense.

    Governments can be designed any way you like, but, if supporting them is compulsory and they allow elections, the weak will vote to use them as tools of theft. The sociopaths will then expand the size and scope of government to include their friends who comprise an easily-obtained voting demographic for re-election. In seeking more votes, the sociopaths will bring the easily-swayed into the government, degrading it toward the maximum amount of sociopathy it can support. (This amounts to less sociopathy than open air death camps and murder in the streets, but far more sociopathy than is acceptable to decent human beings -for instance, 2.4 million people incarcerated, with 60% of them incarcerated for victimless crimes, and medical unfreedom that allows for no innovation at the speed of computation increase, etc…).

    Let’s say taxes were $500 per year (less than rural area property taxes in most nice areas of the USA), and your city had 100 police per year, each making $50K/year. You would need 10,000 citizens to start such a city, and voluntarily pay taxes into it. If juries were structured like Schaeffer Cox structured his Second Amendment Task Force in Alaska, with people paying silver coins (sound money) to call out a jury trial, the court system wouldn’t need much overhead or bloat.

    By carefully designing a Republic, you could decide to only have elections when 99% of society called them and only then when 99% of society agreed. A copy of the charter could be given to each citizen, and they could sign the bottom of it, or not (letting the police know whether they should overextend themselves or not). With smartphones, the clunky election apparatus need not interfere with efficient administration. The charter could call for a voluntaryist or libertarian who believes in defensive force being the head of the navy, and the police (and citizens) could take turns serving as the military, so there isn’t a problem generated by a standing army.

    Most of the design of the Republic would need to be in defining jury trials, since that was the fatal downfall of the USA. Jury trials are protected in our Bill of Rights, but they are not clearly and explicitly defined, so our police state now substitutes faux juries with proper ones, and given government control of education, the public is too uneducated to resist.

  5. Pavel Procházka permalink
    November 12, 2012 6:05 am

    Dear Mr. Gibson,
    I would like to ask you for one think. In the beginning you wrote: “there was never a commission”. But Decree No.123-2011 of the Constitution (see
    http://www.grupomgk.com/english/pdf/Constitutional%20Statute%20of%20the%20Special%20Development%20Regions%20%28SDR%27s%29.pdf ) define the Transparency Commission as a part of RED. So it means, there had to be some commission – at least as a plan for the future. I must admit I am a bit confused. I would be grateful for your answer.

    Yours sincerely
    Pavel Procházka

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  1. Romer Offers More Complaints in the Economist « Let A Thousand Nations Bloom

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