Zero Govt Control Emerges in New Breed SEZs

The dream of Próspera, founded by a U.S. corporation off the coast of Honduras, was to escape government control. The Honduran government wants the new SEZ gone.

· There are more than 5,400 of these special economic zones in the world, ranging on a spectrum from free ports for duty-free trading all the way to the special administrative region of Hong Kong.

· Shenzhen, which went from a fishing village to one of China’s largest cities, with a G.D.P. of $482 billion, after it was designated a special economic zone in 1980.

· There are about three dozen charter cities currently operating in the world, according to an estimate from the Adrianople Group, an advisory firm that concentrates on special economic zones.

· Praxis, a forthcoming “cryptostate” on the Mediterranean; and the Free Republic of Liberland, a three-square-mile stretch of unclaimed floodplain between Serbia and Croatia.

· Srinivasan, the former Coinbase chief technology officer and now an adviser to Pronomos Capital, Friedman’s fund to build start-up cities, argued in his 2022 book “The Network State” that these new business-friendly hubs would soon compete with nation-states and, one day, replace them.

· Charter cities would give developing countries a chance to prosper by ceding uninhabited territory to wealthier nations to develop.

· This ruling country would act as a “guarantor” to the host country and write its own laws and regulations, which would attract private companies to invest and build the cities.

· Honduran soldiers stormed the home of the country’s left-wing president, Manuel Zelaya. They led him outside at gunpoint, still in his pajamas, and put him on a plane to Costa Rica.

· Shortly after the coup, the military held another election; it put into office the conservative candidate Porfirio Lobo, who lost the previous contest to Zelaya. Several nations, including the United States, questioned the legitimacy of an election staged by leaders of the coup.

· In 2013, Honduras amended its constitution to allow for the creation of autonomous zones, following China and the United Arab Emirates.

· U.S. banana companies, like Cuyamel and United Fruit (now Chiquita), built railroads, port infrastructure and other projects in exchange for land. By the beginning of World War I, O. Henry had named the country the original “banana republic.” The six largest banana companies owned more than a million acres of fertile land on Honduras’s northern coast, and in 1911, one orchestrated a coup to install a puppet government.

· Próspera has now incorporated 222 businesses into the ZEDE, including an outsource staffing agency and scores of experimental medical centers. Minicircle, founded by two young biohackers, offers a product that they say might cure Alzheimer’s and suppress all tumors; Symbiont Labs manufactures implants that turn people into “self-sovereign cyborgs”; the Bay Islands Fitness and Transformation Center offers affordable semaglutide injections; and the Global Alliance for Regenerative Medicine provides stem-cell treatments.

· But in seeking to sidestep politics, Próspera instead ran straight into them. The endemic corruption in Honduras, the sort of thing Próspera was supposed to combat, was also what enabled its creation and has plagued its pursuit of legitimacy. For Hondurans, the prospect of American capitalists promising prosperity may instead resurrect fears of exploitation and dispossession.

· In 2022, the government began stripping Próspera of some of the special privileges it was granted under its predecessors. It halted the company’s tax-exempt customs service, allowing the zone to continue to import goods only if it paid the same duties as the rest of Honduras.

[ABS News Service/29.08.2024]

Jorge Colindres, a freshly cologned and shaven lawyer, handed me a hard hat to take the elevator to the 14th floor of what is now the tallest building on the Honduran island of Roatán — nearly twice what the local building code allows. When construction is complete, Duna Residences will house 82 units overlooking a jungle of palm trees, the Caribbean Sea and several other new buildings that the Honduran government considers illegal.

If Próspera were a normal town, Colindres would be considered its mayor; his title here is “technical secretary.” As we looked out over a clearing in the trees in February, he pointed to the small office complex where he works collecting taxes and managing public finances for the city’s 2,000 or so physical residents and e-residents, many of whom have paid a fee for the option of living in Próspera or remotely incorporating a business there. Nearby is a manufacturing plant that is slated to build modular houses along the coast designed by Zaha Hadid Architects. About a mile in the other direction are some of the city’s businesses: a Bitcoin cafe and education center, a genetics clinic, a scuba shop. A delivery service for food and medical supplies will deploy its drones from this rooftop.

There’s not much else to see yet. But the Delaware-based company that founded this experimental town in 2017 has raised $120 million in investments — including from venture-capital funds backed by the Silicon Valley billionaires Peter Thiel, Sam Altman and Marc Andreessen — to transform the territory, about twice the size of Monaco, into the most developed start-up city in the world. Built in a semiautonomous jurisdiction known as a ZEDE (a Spanish acronym for Zone for Employment and Economic Development), Próspera is a private, for-profit city, with its own government that courts foreign investors through low taxes and light regulation. Businesses can choose a regulatory framework from a menu of 36 countries or customize their own.

A California company offers a Montessori education for approximately 60 students. Security is provided by a private firm of armed guards. An arbitration center staffed by three retired Arizona judges handles dispute resolution. (In order to enter the jurisdiction, I was told I needed to sign an “agreement of coexistence” binding myself to 4,202 pages of rules, violations of which would be subject to the jurisdictional authority of the arbitration center.)

Próspera has become particularly well known for the zone’s experimental medical facilities, which run clinical trials unburdened by F.D.A. standards. The week of my visit, Patri Friedman, grandson of the economist Milton Friedman and the founder of a start-up-cities fund that invested in Próspera, had a chip with his Tesla key implanted into his hand. On a previous trip he brushed his teeth with genetically modified bacteria purported to prevent cavities. Another time he was injected with a protein booster intended to make him “stronger and faster,” as he put it at a conference in Roatán that weekend.

“I can tell you when Próspera became most real for me,” Friedman told the audience. “When I sat down to fill out my informed-consent forms that said, like, ‘This agreement is adjudicated under the laws of the Próspera ZEDE; any disputes are arbitrated by the Próspera Arbitration Center.’ Like, you are under a different set of laws.”

There are more than 5,400 of these special economic zones in the world, ranging on a spectrum from free ports for duty-free trading all the way to the special administrative region of Hong Kong. About 1,000 zones have cropped up in just the past decade, including dozens of start-up cities — sometimes called charter cities — most of them in developing nations like Zambia and the Philippines. Some have actually grown into major urban centers, like Shenzhen, which went from a fishing village to one of China’s largest cities, with a G.D.P. of $482 billion, after it was designated a special economic zone in 1980.

Each zone offers a degree of escape from government oversight and taxation, a prospect that has excited libertarian and anarcho-capitalist thinkers at least since Ayn Rand imagined a free-market utopia called Galt’s Gulch in “Atlas Shrugged.” Today, escalating clashes between the government and Big Tech — like the S.E.C.’s regulatory war on crypto, or the Federal Aviation Administration’s repeated investigations into SpaceX — have spurred some Silicon Valley entrepreneurs to seek increasingly splintered-off hubs of sovereignty. And with government dysfunction preventing reforms even in wealthy cities like San Francisco, locked in a decades-long affordable-housing crisis, and New York City, which just lost out on as much as $1 billion when Albany scrapped a 17-years-in-the-making congestion pricing plan that would have funded public transit, it’s not hard to see the appeal of starting from scratch.

In promotional materials, Próspera markets itself to “21st-century pioneers” craving not just laissez-faire policies but also “good times and Caribbean vibes.” Direct flights from Miami and Houston can transport these digital nomads to Roatán in less than three hours. Then, from a chaise longue on the beach, they can register a business with the tap of a button. Although only one residential building has been built so far, a forthcoming eco-condo was during my visit courting buyers seeking “more personal freedom” and less “political drama.” Próspera’s original investment plan projected that by 2030 the city would be home to 38,000 residents, and that foreign direct investment in the country would top $500 million by next year.

But plenty of other people find Próspera’s goal — “building the future of human governance: privately run and for-profit” — unsettling. Critics have described it as a neocolonial state within a state, or an example of corporate monarchy, where yacht-owning C.E.O.s exploit land and labor in a poor country. Keller Easterling, the urbanist and architectural theorist, considers Próspera a city in name only, akin to “say, Mattress City.” Really, she says, the zones are low-tax, deregulated marketplaces.

This lack of transparency is one common criticism of Próspera, and today, it’s unclear whether this experiment can continue. In recent years, vehement opposition from the Honduran government and neighboring communities has imperiled Próspera’s future. Now its fate — and that of the private-cities movement writ large — hangs in the balance of a high-stakes case before an international tribunal.

There are about three dozen charter cities currently operating in the world, according to an estimate from the Adrianople Group, an advisory firm that concentrates on special economic zones. Several others are under development, including the East Solano Plan, run by a real estate corporation that has spent the last seven years buying up $900 million of ranch land in the Bay Area to build a privatized alternative to San Francisco; Praxis, a forthcoming “cryptostate” on the Mediterranean; and the Free Republic of Liberland, a three-square-mile stretch of unclaimed floodplain between Serbia and Croatia. Many of the same ideologically aligned names — Balaji Srinivasan, Peter Thiel, Marc Andreessen, Friedman — recur as financial backers; Patrik Schumacher, principal of Zaha Hadid Architects and a critic of public housing, is behind several of their urban (or metaversal) designs.

Srinivasan, the former Coinbase chief technology officer and now an adviser to Pronomos Capital, Friedman’s fund to build start-up cities, argued in his 2022 book “The Network State” that these new business-friendly hubs would soon compete with nation-states and, one day, replace them. “The Network State” was inspired, he said, by the state of Israel. “That country was started by a book,” he tweeted in 2022, referring to Theodor Herzl’s 1896 manifesto, “The Jewish State.” “You can found a tribe,” Srinivasan said on a podcast. “What I’m really calling for is something like tech Zionism — when a community forms online and then gathers in physical space to form a ‘reverse diaspora.’”

The concept might have stayed on the fringes of libertarian and neoreactionary forums had Paul Romer, who would go on to be the chief economist of the World Bank and win the Nobel Prize, not made charter cities the subject of an influential 2009 TED Talk. He projected a photo of students in an African country doing their homework under streetlights, explaining that their government required the electric company to provide power at such low prices that the company decided not to service the homes in their area at all. When the president tried to reform the system, he went on, consumers and business leaders pushed back, and ultimately, nothing changed. Romer argued that charter cities would give developing countries a chance to prosper by ceding uninhabited territory to wealthier nations to develop.

This ruling country would act as a “guarantor” to the host country and write its own laws and regulations, which would attract private companies to invest and build the cities. In turn, jobs, technology and educational opportunities would pour into the host country, which would share in the revenue, too. Locals would stop leaving for richer countries, migrants would come to the zone, a virtuous cycle would take hold and students wouldn’t need to do their homework in the streets. “The city can be built,” Romer said in his talk. “And we can scale this model. We can go do it over and over again.”

Around the same time that Romer was delivering his TED Talk, Honduran soldiers stormed the home of the country’s left-wing president, Manuel Zelaya. They led him outside at gunpoint, still in his pajamas, and put him on a plane to Costa Rica. Zelaya had been planning to hold a public referendum on reforming the Constitution, which his critics saw as an attempt to illegally extend term limits. Shortly after the coup, the military held another election; it put into office the conservative candidate Porfirio Lobo, who lost the previous contest to Zelaya. Several nations, including the United States, questioned the legitimacy of an election staged by leaders of the coup.

A tumultuous three years followed: Romer and the oversight board he helped set up were sidelined, and the Honduran Supreme Court initially rejected the constitutional amendment. But Congress, led by Hernández, dismissed the four opposing judges in what some critics called a “technical coup.” (Hernández, who succeeded Lobo as president of Honduras, continued to have a career marred by corruption and was recently sentenced to 45 years in a United States federal prison for drug trafficking.) In 2013, Honduras amended its constitution to allow for the creation of autonomous zones, following China and the United Arab Emirates.

In the late 1800s, Honduras owed immense debt to Britain, and began offering land and financial incentives to attract foreign investment. Eventually, U.S. banana companies, like Cuyamel and United Fruit (now Chiquita), built railroads, port infrastructure and other projects in exchange for land. By the beginning of World War I, O. Henry had named the country the original “banana republic.” The six largest banana companies owned more than a million acres of fertile land on Honduras’s northern coast, and in 1911, one orchestrated a coup to install a puppet government.

Where many see a story about exploitation, Colindres describes one of private-sector productivity. As workers migrated to the coasts to work, the plantations grew into small cities with their own housing, schools, hospitals and stores. “Back then there was very poor infrastructure, and so when the banana companies came everything had to be done,” Colindres said. “No roads, no electricity — all of what we consider public infrastructure in Honduras, it was put in by the private sector.”

Colindres’s political views started hardening as a teenager living through the coup of 2009. He went to law school and came to the conclusion that he’d have to leave Honduras for the United States if he wanted to have a fulfilling career. But then came news that the ZEDE constitutional amendment had passed. Honduran law preserved national authority over a few fields, like criminal law, but granted the zones broad freedom to establish their own courts, fiscal policies and labor and environmental protections.

In 2014, as required by the amendment, Juan Orlando Hernández appointed a group to oversee the ZEDEs. Early members included a granddaughter of the final Austrian emperor and a band of Republicans from the U.S. that included the former Reagan speechwriter Mark Klugmann, the anti-tax activist Grover Norquist, the former Reagan aide Faith Whittlesey, the libertarian economist Mark Skousen and Ronald Reagan’s son Michael Reagan. A couple of years later, Honduran lawmakers heard about an Arizona entrepreneur named Erick Brimen who was lobbying Washington to make creative use of the U.S. Constitution’s Compact Clause to pass a bill establishing low-regulation “prosperity zones.” Brimen was having a hard time implementing his vision in the States, so took the Hondurans up on their offer to develop a zone like the one Romer imagined, but run by a private company rather than by another nation.

Próspera has now incorporated 222 businesses into the ZEDE, including an outsource staffing agency and scores of experimental medical centers. Minicircle, founded by two young biohackers, offers a product that they say might cure Alzheimer’s and suppress all tumors; Symbiont Labs manufactures implants that turn people into “self-sovereign cyborgs”; the Bay Islands Fitness and Transformation Center offers affordable semaglutide injections; and the Global Alliance for Regenerative Medicine provides stem-cell treatments. (A man sitting next to me on my flight from Roatán showed me severe burns on his arms that he’d come to treat at the clinic.) While I was visiting, a “pop-up city” called Vitalia used a dome it had erected on Próspera’s grounds to host events for biotech innovators who want to “make death optional.”

But in seeking to sidestep politics, Próspera instead ran straight into them. The endemic corruption in Honduras, the sort of thing Próspera was supposed to combat, was also what enabled its creation and has plagued its pursuit of legitimacy. For Hondurans, the prospect of American capitalists promising prosperity may instead resurrect fears of exploitation and dispossession. Despite Próspera’s fantasy of exit, it uses roads, hospitals and ports built by the municipal government, and it shares an economy and ecosystem with its neighbors in Crawfish Rock. The national government that granted its right to exist, meanwhile, may still take it away.

In 2022, the government began stripping Próspera of some of the special privileges it was granted under its predecessors. It halted the company’s tax-exempt customs service, allowing the zone to continue to import goods only if it paid the same duties as the rest of Honduras. Colindres said that the National Banking and Insurance Commission also pressured Honduran banks to shut down accounts of Próspera businesses and bar lenders from financing its projects. Duna Residences, for example, “was going to be financed by one of the biggest banks of Honduras,” Colindres said. But once President Castro came to power, the financing evaporated and the building was delayed. “The third tower would already be under construction if they hadn’t done that.”

At the end of 2022, Honduras Próspera Inc. and its affiliates filed an astronomical $10.775 billion lawsuit against the state in a World Bank tribunal called the International Center for Settlement of Investment Disputes (ICSID). Próspera is thought to have a good chance of prevailing in part, critics say, because the court is biased toward corporations, which can bring suit against nation-states but cannot be sued by them.

A win for Próspera could demonstrate sufficient legal stability to attract investors and set the precedent for new cities around the world. If it loses, start-up city founders will need to look for new legal strategies. Colindres said that his mission now is to try to persuade the government, “whether this government or the next government,” to stop “harassing” the banks and let them finance Próspera projects. That could be the government of Juan Orlando Hernández’s wife, Ana García de Hernández, who would soon announce her candidacy for the 2025 presidential election.

With building delayed, the view from the Duna tower’s rooftop looked like little more than a construction zone — a patch of dirt littered with piles of two-by-fours and wooden pallets. There were as many sheds as finished buildings. Still, some think Próspera may already be too far along to fail: There is simply too much capital already invested, too many commitments made, to have them torn apart in Tegucigalpa. The government is making “emotional arguments more than anything else,” González told me. “If they had the legal right to do what they’re trying to accomplish, they’d have already done it.”