I think that’s an interesting and very open-minded reply. But I think the problem with the proposed model in practice isn’t just that competition limits the ability to coordinate to prevent negative externalities, it’s that the specific type of competition that “charter cities” are designed to stimulate (making undeveloped land in a poor country with severe governance problems into an attractive opportunity for business investment) is naturally geared towards lower taxes than elsewhere because it’s one of the few things they can credibly commit to. Pretty much everyone agrees that “better institutions” matter to economic development, but good institutions are composed of people and culture and stability, and a startup entity with no existing infrastructure, limited sovereignty and a problematic parent country doesn’t have any of that. What it can offer is “really low taxes”. This also tends to be the carrot for the governments setting up the zones (the Honduran government doesn’t really have an interest in demonstrating that it’s doing a terrible job of regulating, but Prospera’s plans to pay them a very small percentage of some expat millionaires’ income sounded like a good deal at the time. Same logic as the tax havens). So the “race to the bottom” dynamics would exist even if the intellectual and financial core of the movement was considerably less libertarian.
I agree there’s plenty of potential value for humanity in studying what went well in Singapore and Dubai and the Guangdong SEZs that might actually be replicable, but one thing they definitely don’t have in common is being set up by foreigners as greenfield projects to explore the regulations and city planning that most suit them. In that respect, Itana as a project set up by Nigerians with the stated goal of boosting Nigeria might be more interesting, but a quick glance suggests that generous tax exemptions are the real draw there too. And Prospera’s low and regressive tax rates and corporate appointees’ veto over elected candidates’ decisions don’t really seem like evidence-based development hypotheses for the Honduras worth testing. Having some wealthy foreigners around will create some local jobs, as in all the other “socially-useless tax havens” and generic holiday resorts and it looks really pretty but it’s notable that the regulations its founders are publicly critiquing aren’t Honduran ones (apart from the tax). The reason the rest of the Honduras isn’t characterised by “modern, eco-friendly” Zahra Hadid-designed architecture has nothing to do with US-style zoning laws which aren’t present in the rest of the Honduras or most of the rest of the world.
Admittedly Romer only proposed charter cities in 2009, but the relative abundance of “socially useless” tax havens and SEZs and primarily extractive colonies set up by foreign investors throughout history isn’t coincidental; its the default model. And having Prospera Inc as an example is particularly unhelpful as it doesn’t really seem to be deviating from that: having lost the support of Romer, local people and the national government it’s currently threatening to sue them for around the total annual Honduran govt budget based on theoretical profits its investors are supposed to make if it continues. Hard to imagine anything less altruistic (or likely to inspire a resolution to the endemic corruption in the Honduras) than foreign investors threatening to bankrupt a developing country for attempting to repeal their sweetheart tax deal a predecessor forced through after kicking four objectors off the Supreme Court.
I think that’s an interesting and very open-minded reply. But I think the problem with the proposed model in practice isn’t just that competition limits the ability to coordinate to prevent negative externalities, it’s that the specific type of competition that “charter cities” are designed to stimulate (making undeveloped land in a poor country with severe governance problems into an attractive opportunity for business investment) is naturally geared towards lower taxes than elsewhere because it’s one of the few things they can credibly commit to. Pretty much everyone agrees that “better institutions” matter to economic development, but good institutions are composed of people and culture and stability, and a startup entity with no existing infrastructure, limited sovereignty and a problematic parent country doesn’t have any of that. What it can offer is “really low taxes”. This also tends to be the carrot for the governments setting up the zones (the Honduran government doesn’t really have an interest in demonstrating that it’s doing a terrible job of regulating, but Prospera’s plans to pay them a very small percentage of some expat millionaires’ income sounded like a good deal at the time. Same logic as the tax havens). So the “race to the bottom” dynamics would exist even if the intellectual and financial core of the movement was considerably less libertarian.
I agree there’s plenty of potential value for humanity in studying what went well in Singapore and Dubai and the Guangdong SEZs that might actually be replicable, but one thing they definitely don’t have in common is being set up by foreigners as greenfield projects to explore the regulations and city planning that most suit them. In that respect, Itana as a project set up by Nigerians with the stated goal of boosting Nigeria might be more interesting, but a quick glance suggests that generous tax exemptions are the real draw there too. And Prospera’s low and regressive tax rates and corporate appointees’ veto over elected candidates’ decisions don’t really seem like evidence-based development hypotheses for the Honduras worth testing. Having some wealthy foreigners around will create some local jobs, as in all the other “socially-useless tax havens” and generic holiday resorts and it looks really pretty but it’s notable that the regulations its founders are publicly critiquing aren’t Honduran ones (apart from the tax). The reason the rest of the Honduras isn’t characterised by “modern, eco-friendly” Zahra Hadid-designed architecture has nothing to do with US-style zoning laws which aren’t present in the rest of the Honduras or most of the rest of the world.
Admittedly Romer only proposed charter cities in 2009, but the relative abundance of “socially useless” tax havens and SEZs and primarily extractive colonies set up by foreign investors throughout history isn’t coincidental; its the default model. And having Prospera Inc as an example is particularly unhelpful as it doesn’t really seem to be deviating from that: having lost the support of Romer, local people and the national government it’s currently threatening to sue them for around the total annual Honduran govt budget based on theoretical profits its investors are supposed to make if it continues. Hard to imagine anything less altruistic (or likely to inspire a resolution to the endemic corruption in the Honduras) than foreign investors threatening to bankrupt a developing country for attempting to repeal their sweetheart tax deal a predecessor forced through after kicking four objectors off the Supreme Court.