Friday, May 4, 2012

Graft Free Zones

This is surely an idea whose time has come.  It is about establishing a clear cut Graft Free Zone in the countries receiving foreign aid.  It has long been apparent that it is graft that grinds a population into poverty and keeps it there.  Take that out of the equation and  even shanty towns show us this.  What is so apparent though is the also the life blood of whatever local elite actually exists.  This same elite has a stranglehold on power and will always be opposing change.

Breaking this vicious cycle needs to be done just this way by establishing protected enclaves.  It is the lesson drawn from all the reformers and the success stories out there.  In time success lifts all boats and it all begins to grow out of the trap.

That Honduras is trying it out is welcome and hopefully we can create an international template that can be deployed everywhere.

Urban prosperity in the RED


From Wednesday's Globe and Mail
Published Wednesday, Apr. 25, 2012 2:00AM EDT

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.

Many people from around the world would like access to the security and opportunity that Canadian governance makes possible. According to Gallup, the number of adults worldwide who would move permanently to Canada if given the chance is about 45 million. Although Canada can’t accommodate everyone who’d like to move here, it can help to bring stronger governance to many new places that could accept millions of new residents. The RED in Honduras is the place to start.

With half of its population in urban areas, Honduras is among the poorest and least urban countries in Latin America. About four million Hondurans now live in cities, a number the United Nations expects to more than double by 2050. The Honduran government sees this rapid urbanization as an opportunity for inclusive growth and reform.

Honduran congressional support for the RED reflects a clear understanding of the challenges the country faces. Inefficient rules are the major obstacle to peace, growth and development. These rules are difficult to change, especially in a society that suffers from fear and mistrust. Building a new city on an undeveloped site, free of vested interests, with trusted third parties, is one way to fast-track reforms that might otherwise take decades to achieve.

Canadians are increasingly aware of the limits of traditional aid but remain committed to the principle that supporting international development is not only in Canada’s national interest but is the right thing to do. Recent trade agreements with Peru, Colombia, Panama and Honduras demonstrate that Latin America remains high on Canada’s development agenda.
The RED offers a new way to think about development assistance, one that, like trade, relies on mutually beneficial exchange rather than charity. It’s an effort to build on the success of existing special zones based around the export-processing maquila industry.

These zones have expanded employment in areas such as garments and textiles, with substantial investment from Canadian firms such as Gildan, but they haven’t brought the improved legal protections needed to attract higher-skilled jobs. By setting up the rule of law, the RED can open up new opportunities for Canadian firms to expand manufacturing operations and invest in urban infrastructure.

By participating in RED governance, Canada can make the new city a more attractive place for would-be residents and investors. It can help immediately by appointing a representative to a commission that has the power to ensure that RED leadership remains transparent and accountable. It also can assist by training police officers.

The courts in the RED will be independent from those in the rest of Honduras. The Mauritian Supreme Court has agreed in principle to serve as a court of final appeal for the RED, but Canada can play a strong complementary role. Because the RED can appoint judges from foreign jurisdictions, Canadian justices could hear RED cases from Canada and help train local jurists.

Oversight, policing and jurisprudence are just a few of the ways in which Canada can help. Effective public involvement will also be required in education, health care, environmental management and tax administration. Such co-operation can be based on a fee-for-service arrangement in which the RED pays Canada using gains in the value of the land in the new reform zone.

The world does not need more aid. As the Gallup numbers show, it needs more Canada – more of the norms and know-how that lead to the rule of law, true inclusion and real opportunity for all. Because only people who want to live under the RED’s new system of rules would choose to move there, Canada’s presence would not only be welcome but legitimate.

By working together, Canada and Honduras can do what traditional aid can’t: offer people a chance to live and work in a safe and well-run city, one that provides economic opportunities for Canadians and Hondurans alike, and one that has the potential to inspire reform in the rest of Honduras and throughout the region.

Paul Romer is a professor of economics at the New York University Stern School of Business. Octavio Sanchez is chief of staff to the President of Honduras. Prof. Romer is co-author of a recent paper for the Macdonald-Laurier Institute on charter cities, economic development and Canadian opportunities.

Paul Romer’s charter cities project – some efforts by Honduras beginning to show

In Mar-11, I had posted how Honduras has become the first country to allow Paul Romer’s experiment of charter cities.
There is some more work since then. Honduras has created RED which are special development regions where these cities can come up. In Jul-11, Congress passed a constitutional statute that defines the governance structure for the RED.
In February of 2011, the Honduran Congress passed a constitutional amendment that gives the government the power to create Special Development Regions (“las Regiones Especiales de Desarrollo” or RED in spanish). In July of 2011, the Congress passed a constitutional statute that defines the governance structure for the RED. 
Though part of sovereign Honduran territory, a RED has its own administrative systems and laws. Initially, governance in the RED will be directed by a governor who is accountable to a nine person Transparency Commission. The constitutional statute that legally defines a RED can only be modified with a two-thirds majority vote in Congress and approval by referendum from the people living in the RED.
A RED can only be established if the Honduran Congress votes to approve its boundary. Though there are many possible sites for a RED in Honduras, the Congress has not yet voted to approve the boundary for a particular site.
The first site has been identified as per this economist article (HT: Tyler Cowen). It is Trujillo in north of Honduras next to Caribbean Sea:
TRUJILLO is a sleepy backwater, but one with a lot of history. The beautiful bay surrounded by lagoons and mountains on the northern coast of Honduras was where Christopher Columbus set foot on the American continent during his fourth voyage in 1502. But in a few decades, it might be known for something entirely different: being the Hong Kong of the West. Scores of skyscrapers and millions of people could one day surround the natural harbour. The new city could dominate Honduras, today one of the poorest and most crime-ridden countries in Central America, becoming a magnet for most of the region’s migrants.
The prospect may sound fantastic, but this is the goal of an ambitious development project that Honduras is about to embark upon. In a nutshell, the Honduran government wants to create what amounts to internal start-ups—quasi-independent city-states that begin with a clean slate and are then overseen by outside experts. They will have their own government, write their own laws, manage their own currency and, eventually, hold their own elections.
The article points to challenges and issues for the first charter city. A must read.
Meanwhile they have appointed members of Transparency Commission which will oversee the operations of this project:
Last July, the Honduran National Congress passed aconstitutional statute that defines the governance structure for la Región Especial de Desarrollo (RED), or the Special Development Region, in Honduras. The statute calls for the creation of a Transparency Commission, a body that will help to ensure that the process governing the development of the RED remains open, honest, and free of corruption.
On December 6, President Porfirio Lobo appointed the initial members of the Transparency Commission:
1.      George Akerlof – Professor of Economics at the University of California at Berkeley, Senior Resident Scholar at the International Monetary Fund, and Nobel Prize Winner
2.      Harry Strachan – Former President of INCAE Business School, Director Emeritus at Bain & Co., and Managing Partner at Mesoamerica Partners and Foundation in Cost Rica
3.      Ong Boon Hwee – Former Chief Operating Officer of Singapore Power and Former Brigadier General in the Singapore Armed Forces
4.      Nancy Birdsall – President and Co-Founder of the Center for Global Development , former Senior Associate at the Carnegie Endowment for International Peace, and former Executive Vice President at the Inter-American Development Bank
5.      Paul Romer (Commission Chair) – Professor of Economics at the New York University Stern School of Business
It is a nine member commission and first job is to identify the right people to fill the committee positions. How about Ed Glaesar on the board?

Easily one of the largest experiments in growth and development economics. People are already criticising it for bringing back colonial times, so will be watching the developments closely looking for any opportunity to speak against the project..

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