Privatizing Paradise in the Murder Capital of the World




Privatizing Paradise in the Murder Capital of the World by James McGirk

November 18th, 2012 reset - +

WHAT WOULD IT BE LIKE for a corporation to not only run an entire city, but to have built that city from scratch, to its own specifications, according to a planned, privatized model of everyday life?

The blurring of the lines between the public and private sectors is nothing new. Indeed, modern America is defined by for-profit prisons and privatized charter schools, not to mention the expansion of a privatized health insurance system (i.e., Obamacare) and the outsourcing of military and intelligence operations to such corporations as Xe (Blackwater, among other names). But the United States has yet to relinquish control of an entire city to a corporation. Our municipal governments function fairly well: the city collects our garbage; a call to 911 will summon emergency personnel. Children will leave a public school knowing how to read and write, and we have a court system that offers a somewhat fair venue for redressing grievances and abuses of power. The post office delivers our mail every day (albeit while on the brink of fiscal insolvency).

Honduras, by contrast, does not currently have a government capable of servicing the people’s needs. The country is grossly unstable. President Porfirio Lobo took over in a right-wing coup in 2009. Honduras hovers near the bottom of many international indices measuring quality of life: it has a Gini coefficient only slightly better than Haiti’s (this a measure of income inequality), the world’s highest number of murders per capita (someone is 21 times as likely to be murdered in Honduras than in the United States), and an average annual spending power of only $4,300 per person (purchasing power parity), which places it below the Philippines and the Democratic Republic of Congo and just above India and Iraq, according to the World Bank. In short, Honduras is the sort of place where handing over control of a municipal government to a group of foreign investors might not seem like such a bad idea.

Were it not for an 11th-hour legal challenge by the Honduran Supreme Court, Groupo MGK, a consortium of “professionals with top expertise in law, governance, security, free zone design, real estate development, urban planning, health care, entrepreneurship and more,” would have begun laying the foundations for an entirely new city in Honduras. Groupo MGK is a combination of American libertarian activists (like Michael Strong) and policy advisors, including high-profile members of Porfirio Lobo’s administration, and is apparently funded by Silicon Valley venture capitalists and Latin American real estate moguls. Sinister as these folks may sound, they have a vested interest in stabilizing the region and improving the lives (at least in an economic sense) of their charges. Whether this will come at the expense of the dignity of the population remains to be seen.

For now the project is on hold, and the company is searching for a more compliant local government. Jamaica is apparently a strong contender. Greece has been mentioned too. This was the closest anyone has come to creating an entirely privatized city. Groupo MGK is determined to make it happen.

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Honduras would have been an ideal location for the “free city.” Although ostensibly a democracy, the country is so unequal that the entrenched elite have permanently gamed the system in their favor. They own monopolies on all the major utilities and businesses and are able to charge unfair prices, receive subsidies from the government, restrict competitors, and basically create such a hostile environment that no Honduran or outside company can compete (if someone did challenge the entrenched elite, the corrupt local government would simply shut them down or seize their property). Without the creative destruction that competition provides, the Honduran economy stagnates, less and less able to compete with other countries, and there is less tax revenue for education and healthcare. The result is less social mobility, more misery, and a moat dividing the rich from the poor that yawns ever wider.

Democratic reform is often impossible. The elite want to safeguard their privileges and monopolize access to the government; even if reforms were passed, there is a big difference between putting a law on the books and actually enforcing it — particularly in a country that can’t even guarantee the most basic human rights to its citizens. Where does this leave the population? One way to handle it is revolution, followed by bracing reform. But revolution is a tricky business: it often leads to the replacement of one entrenched dictator with another (Robert Mugabe for Ian Smith), or preserves that elite by simply advancing a new face for the old (the Egyptian military trying to maneuver a powerless president into place for Hosni Mubarak). And even in the very best of circumstances, civil war is something to be avoided. People are killed, infrastructure is torn up, and a country is left vulnerable to invasion and meddling by foreign powers.

A bloody revolution is one way to go. Privatization is another. That’s where Groupo MGK comes in.

Groupo MGK planned to build a city from scratch in a special development region of Honduras (RED, or Región Especial de Desarrollo, Spanish for Special Development Region), allowing it to design a regulatory and legal framework with a certain amount of autonomy from the rest of Honduras. According to the Charter Cities blog, the two constitutional articles that would create the REDs defined the zones as having “their own legal personality and jurisdiction, administrative systems and laws.” The REDs would be able to “negotiate international treaties with partner countries or organizations.” Judges would be nominated by a “governing authority,” and the final court of appeal “for judicial decisions from the zone” could be “an external body.”

The Honduran government would have some authority over the RED. Their Congress would have to ratify any international treaties made by the RED with “a simple majority.” Judges nominated by an RED would be “subject to approval by Congress,” and if it ever came to it, the Honduran government could revoke the REDs’ status with an “approval by referendum” by the REDs’ citizens and a two-thirds majority of Congress. Other than that, REDs would essentially be autonomous city-states within Honduras.

The beauty of building a city from scratch and letting it operate under a separate legal framework is that it circumvents the preexisting order without threatening it directly. Rather than challenge the entrenched elite, this new city will simply circumvent it: luring the best and brightest away from the rest of Honduras and into a world of its own. Give it a few generations, and the currently nameless city will grow into a mercantile paradise along the lines of Singapore or Hong Kong. Then, perhaps, with a proven track record, the reform pioneered in the free city will spread to new colonies (the way that China created special economic zones (SEZs) modeled after Hong Kong in the 1980s and 1990s, perhaps in anticipation of the city of Hong Kong reverting to Chinese rule in 1997.).

But this isn’t really about revolution. Unlike Hong Kong and Singapore, which grew into free cities more by accident than by design (in that they had fewer regulations than their neighbors and served as convenient ports, banking centers and duty-free trade zones), Groupo MGK is building a city for profit. And this is where the project gets complicated. They have a group of international investors funding them, and just as with any other market venture, Groupo MGK will eventually be responsible for generating a return on their investment. The company will not yet reveal details of how they plan to generate a profit from the city; at most they say, “out of respect to the Honduran government and our ongoing collaboration with them, we are committed to not discussing speculative aspects of the project at this point in time.” There are several ways that investors could make a profit from the city, some more exploitative than others.

If Groupo MGK owns land within the RED, for example, they could lease chunks of commercial space to corporations, letting them take advantage of the area’s unique economic climate — this is how the City of London Corporation, an ancient municipal governing body in charge of London’s financial district (“the city”) functions within the larger city of London. The corporation could also develop and sell real estate to the local population; sell licenses to businesses; skim off a percentage of tax revenues; or else just generally give themselves first crack at a captive marketplace. What type of multinational business the RED attracts to Honduras will determine how pleasant life in the RED will be for its population. Honduras lacks the educated population necessary to become an international banking center (although REDs could attract an educated populace). A lax regulatory environment might make an RED more compelling to multinational corporations as a manufacturing Mecca than a trading or financial center. A rogue manufacturing center could be a frightening thing: unchecked pollution, slave wages and dangerous conditions, and no way to redress grievances.

The Groupo MGK’s corporate website gives a glimpse at what would have been in store for Honduras. And their model will likely remain the same or similar no matter where they end up. It tells the story of an original group of attorneys lead by Octavio Sanchez (now chief of staff in the Lobo administration), an American policy advisor named Mark Klugmann, and Pepe Lobo, then president of the Honduran congress. The group was apparently inspired to launch its venture after the Honduran government and Bethlehem Steel Inc. tried to build a shipyard and surrounding city that would lure in refugees from Hong Kong once the city reverted to Chinese rule in 1997. The three “began regular conversations about how to create zones with their own legal system as a means of bypassing the special interests that typically block fundamental reforms.” In 2009, the Honduran government changed hands, and they signed the Central American Free Trade Agreement, which allowed “multinationals operating in Honduras to adjudicate disputes in U.S. courts.” That in turn made the idea of “outsourcing judicial function seem slightly less avant-garde.”

At first, Sanchez and his group envisioned creating an enormous city, far away from anything else in Honduras. They imagined a self-contained metropolis that would require around $50 billion in infrastructure just to get started. Groupo MGK founders Michael Strong and Kevin Lyons talked the original group of attorneys into scaling down the project and moving it closer to existing cities. The first phase of the project will cost roughly $15 million, will abut existing cities and presumably share an electrical grid and other utilities. The first phase of the city will generate 5,000 jobs, according to the Associated Press, and then gradually grow to 200,000. The proximity to existing cities suggests that Groupo MGK’s might have been more of a maquiladora, Mexican slang for the vast multinational manufacturing facilities that have cropped up along the border with United States, than a charter city, the brainchild of American economist Paul Romer. If this is true, it might explain Romer’s abrupt withdrawal from the project.

Paul Romer is famous for his 2009 TED conference speech on charter cities (there are significant differences between Groupo MGK’s project and Romer’s charter cities, namely that Romer advocates letting a first-world country underwrite the city rather than a private corporation). He was an early supporter of Groupo MGK, but on September 30th, only three weeks after a Memorandum of Understanding was signed between the Honduran government and Groupo MGK, Romer removed his support. According to The New York Times, he was surprised by the signing of the agreement, and said that a “temporary transparency commission [Romer] had formed with a group of well-known experts should have been consulted.”

Romer circulated an open letter: “In December 2011, President Lobo signed a decree naming me and four other internationally respected individuals to the Transparency Commission […] however, the government never completed the process of publishing this decree in the Gazette [i.e. presumably the Honduran equivalent of The Federal Register]. The administration’s current position is that because the decree was never published, the Transparency Commission does not exist in the eyes of the law and the five named members have no legal basis for reviewing any agreements.”

Groupo MGK claims that no official transparency group ever existed and says that an imposter created a website claiming to represent an official presidential commission for the Special Development Regions (called CORED). They note also that Romer’s open letter acknowledges no official transparency commission had ever existed, but do not address his concerns about transparency and the fact that the group had not shown their agreement to Romer (perhaps due to the aforementioned privacy concerns about the “speculative aspect” of the project.)

At the very least, Romer had been an advisor to the project, and removing his support suggests that something is seriously amiss. Honduras’ penultimate court, its Constitutional Chamber, ruled that the project was unconstitutional on October 4th, and its Supreme Court upheld the decision 10 days later—killing the project. According to an AP article, “the project [was] opposed by civic groups as well as the indigenous Garifuna people, who say they don't want their land near Puerto Castilla to be used for the project.” The Garifuna “are descendants of the Amazon's Arawak Indians, the Caribbean's Caribes and escaped West African slaves.”

As political opposition grew, the initial bloom of international enthusiasm for Groupo MGK withered away. Sinister stories emerged. Two human rights lawyers, Antonio Trejo Cabrera and Eduardo Diaz, were murdered in the days leading up to Romer’s withdrawal from the project. The night before their murder, one of them, Trejo, who had been a vocal critic of Groupo MGK, “had participated in a televised debate in which he accused congressional leaders of using the private city projects to raise campaign funds,” according to a blog post by Roger Hollander. The Washington Post says that the U.S. embassy is helping with the investigation into Trejo’s death.

There was never an architectural plan for the site in place, at least not publically, and rather than luring people to the community with visions of a futuristic new way of living, Groupo MGK’s website touted education-, job- and safety-oriented slogans like: “My family doesn’t have to live in fear. My children can ride their bicycles in the neighborhood where I own my home. I don’t have to risk my life getting to the U.S.A. and then live there illegally, away from my family.” This is in stark contrast to other quasi-utopian city planning projects like Brasilia in Brazil, Chandigarh in India or Arcosanti in Arizona’s desert, all of which relied on grand architectural visions —created by Oscar Niemeyer, Le Corbusier and Paolo Soleri, respectively. Arcosanti was designed at a similar scale to Groupo MGK’s Honduran project (its first phase designed to accommodate 5,000) but rather than simply set the stage for a city to grow, it tries to anticipate every aspect of life, from industry to housing, and provides an aesthetic, designed solution to everything. None of this was visible in Honduras.

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There is something off-putting about building a city without an aesthetic point of view. Groupo MGK’s fantasy city didn’t even have a name. A name would suggest a point of view, hint at the community and government that Groupo MGK hoped to grow in the RED. Without one, without an organizing principle, this project seems as if it was really nothing more than a machine for generating income for its investors. Unlike charter cities, this does have an American historical equivalent. After the frontier was settled, the big mining and timber companies came sweeping in, setting up company towns for their workers. These were awful places, towns that set their own rules and hired Pinkerton detectives and crooked cops to maintain order, designed to squeeze every drop of income from the land and the workers with company stores (one of the best depictions of this in fiction is Personville aka Poisonville, the setting for Dashiell Hammet’s 1929 Red Harvest.)

That said, maybe the only way to create a functioning city is to set the rules down and let it build itself. Perhaps a new frontier is opening up. Now, rather than finding new territory on which to build, countries will create fertile regulatory environments for their populations to grow wealthy — a sort of Richard Florida’s Rise of the Creative Class on an international scale. Aesthetics alone don’t work. Arcosanti, the total aesthetic vision of Paolo Soleri, was started in 1970, but has yet to attract more than a hundred permanent residents. And, just as life around the maquiladoras in Mexico is so wretched that the meager sustenance they provide is actually appealing to residents, perhaps creating an oasis of law, order and justice in violent Honduras will be enough for residents to gain a toehold and lift themselves out of abject poverty.

Groupo MGK guarantees its city — wherever it ends up being — will look after the rights of its citizens and be accountable to them, but it would be far more reassuring to the world if the company gave a hint of what is to come for the citizens there. After all, if this is an idea whose time has come, there should be no need to hide it from the rest of us.

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