Tragedy on Honduras Charter Cities Project –Victory for Acemoglu/Robinson?

This blog was a supporter of the charter-cities project floated by Prof. Romer. It got some support from Honduras which became the first country to allow chart-cities. There were some grand plans to get the project going with things like transparency commission with people like George Akerlof, Romer, Nacy Birdsall of CGDEV etc. The region selected to develop charter-city was called REDs. The color RED got another  meaning…

There were sceptics from day one over the project which grew once Honduras was selected as the first country for experimentation.

Now, it seems Prof. Romer has resigned (HT: Gulzar) from the project at Honduras. He responded to qs asked by Prof. Cowen on his superblog:

Qn: Prof. Romer, are you still working with the government of Honduras on the creation of a RED – a Region Especial de Dessarrollo?  Or on what some have called a model city? 

Ans: I and the other people who were named to the Transparency Commission wrote a public letter to President Lobo stating that we have no ongoing role in the project. Personally, I have also resigned from the CORED advisory committee.

Qn: In the beginning, you were an active supporter of the RED project. What changed? 

Ans: From recent newspaper reports, I learned that the Honduran agency responsible for public-private partnerships had signed an agreement about a RED with a private company. When I asked for information, I was told that I could not see this agreement.

This was a departure from the standards of transparency that the administration had led me to expect. It was also a departure from the role for the Transparency Commission outlined in the Constitutional Statute passed by the Honduran Congress.

Hmm.. A failure to increase transparency:

Qn: Do you know how the misunderstanding about the legal status of the Transparency Commission came about?  

Ans: Various explanations have been offered, but I cannot be certain why the decree naming the members of the commission was never published in the Gazette. Nor can I be certain why the administration did not disclose its decision not to publish the decree.

Whatever the reasons for these decisions, the result was an important failure of transparency. The public perception, that the Transparency Commission was in operation, differed from the reality. This gave the wrong impression about the checks and balances that would be operating as the first RED came into existence.

From the very beginning, I made a commitment to the citizens of Honduras, to the members of the Honduran Congress, and to the many people around the world who wish Honduras well. I committed that I would work for their benefit and do so transparently. This means that at a time such as this I have to be willing to state to the public what I know to be true.

Despite Prof Romer’s best intents and effort, the project and atleast his involvement in Honduras has come to naught. What a tragedy and a wake up call (as Gulzar calls it) really.

Once again shows the importance of proper and efficient political instis as emphasised by Acemoglu/Robinson duo.They most likely would have said this region unlikely to work unless Honduras revamps its political institutions.

Romer’s interview clearly shows how the initial agreements were abused by the ruling party. So, extractive political institutions at the end of the day ruined what could otherwise have been a project worth experimenting. And it again shows that sound economic ideas alone are not enough. It needs to be backed by sound political will as well. Gulzar played the devil’s advocate on the project earlier which looks so profound now..

How will Prof Romer rework the idea? The whole idea is to set up charter cities in developing countries which will most likely have similar political environment as Honduras. What is the next game plan? Keep watching this blog…

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