Charter Cities

Example

Prospera

Rachel Corbet

"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.
President Lobo’s chief of staff, the Harvard-educated lawyer Octavio Sánchez, saw
Romer’s TED Talk and thought it was just what Honduras needed to achieve economic
prosperity. Sánchez arranged a meeting in Miami among Romer, Lobo and the president
of Congress, Juan Orlando Hernández. Lobo told Romer that to do something as
significant as he proposed — to create a zone that would replace Honduran laws with
those of a wealthier nation — they’d need to amend the Constitution.

Romer visited Tegucigalpa soon after. Honduras, a country where over half the
population lived in poverty and 75,000 people left each year for better opportunities in
the United States, was an ideal testing ground for his vision. When Romer returned
home, he recorded a follow-up TED Talk titled “The World’s First Charter City?”
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 a
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.

...

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.”

Much of the activity at Próspera takes place not in the area where the Duna tower stands
and Colindres works but a 15-minute drive away at Pristine Bay, a green, gated golf
community and beach club. Starting in 2021, Próspera began incorporating parts of the
resort into the zone. Down by the tennis courts, I saw Vitalia’s white-tented dome, though
organizers did not allow me to attend any of its events. Reason wouldn’t grant me access
to a conference it was hosting at the hotel either. So I hung out by the pool, and down the
street at AmityAge Academy, an old restaurant that a Slovakian math tutor had turned
into a Bitcoin education center and cafe.

Just how much land the Próspera ZEDE plans to absorb is the source of much of the
conflict that now vexes the project. Early promotional images sparked outrage for
depicting the north coast of the island dotted with skyscrapers, futuristic houses and
yacht-filled ports, rather than the wooden shacks and jungle that exist there now. One
image that forecast the growth of Próspera from a village to a town to a city made it look
as if the project had “started engulfing the areas around it,” says Ricardo González, a
legal consultant for Honduras Próspera Inc. “It was taken literally” by the people who
lived in those areas, he says, but it shouldn’t have been. “Everything is voluntary, we
cannot just pick up your land and say now it’s part of us.

But it is also true that the ZEDE law allows the Honduran government to compel
landowners to sell to a zone, so long as they are paid fair market value for the property.
Brimen insists that Próspera would never take advantage of that provision, because it
violates the sanctity of private-property rights, and that the company has self-imposed
“the highest possible limitations on this in its charter.” Nevertheless, the provision’s
existence set in motion a spectacular series of events as Próspera began incorporating
land.

The Duna tower stands next to a fork in the road, with one path leading to the Próspera
gate, manned by guards carrying guns and contracts, and the other winding down a dirt
path to a small fishing village called Crawfish Rock. Roatán, thanks to its thriving
tourism industry, generates more money than many parts of Honduras, but Crawfish
Rock — home to a Black, English-speaking community (Roatán is a former British
colony) — is an exception. Turquoise and peach houses sag and lean on stilts, their roofs
patchworks of corrugated-metal scraps.

According to Vanessa Cárdenas, vice president of Crawfish Rock’s patronato, or
community board, it was 2019 when the first Próspera representatives came to the
community, informing them of plans to develop a nearby resort. “It’s quite normal for us
to have this kind of restricted, gated community popping up,” Cárdenas said. The island
is full of them. They also wanted to do community development, they told her, and
offered small-business loans to Crawfish Rock residents. But then odd things started to
happen, Cárdenas said.

Próspera stationed armed guards on the road. Then Brimen tried to form a new
patronato that Cárdenas said was stacked with Próspera employees. (A Próspera
representative disputed this.) In 2020, Cárdenas received a voice message from someone
in the community that said, “This project is not a normal project.” So she and Luisa
Connor, the president of the patronato, began to research Próspera. They learned about
the ZEDE law and about the involuntary sale of land. “By no means did they explain to
us” what a ZEDE was, Connor says. “They came as a normal resort they were going to
build next to the community.” (A Próspera representative disputed this, saying the
company held multiple town halls describing the project to residents.)

Distrust spread among members of the community, who felt they had been lied to about
Próspera’s intentions. In September 2020, Brimen tried to address the conflict by
organizing a meeting in Crawfish Rock. Connor wrote a letter asking him to postpone it,
because Covid was spreading rapidly on the island and the hospitals there were full.
Brimen, who says he was invited by village elders, held the meeting that evening
anyway, accompanied by guards. He stood on a second-story porch reading into a
microphone the parts of the ZEDE law pertaining to land expropriation. “That’s when all
hell broke loose,” Cárdenas said. People rushed up the steps, some shouting that he
should leave, others to let him speak; shoves were exchanged, and Brimen’s MacBook
tumbled off the railing. He yelled at people to back up and stop violating his right to
social distance. Trucks of police officers arrived Brimen later said that, before he was interrupted, he was trying to point out the 
ways the law restricts, rather than promotes, the forced sale of land. But a video of the encounter
circulated throughout Honduran media, and the fear of expropriation became a
galvanizing message used by anti-ZEDE groups on the mainland and the other Bay
Islands. From that point on, the narrative changed from “ZEDEs are bad because they
are violating constitutional rights,” González says, to the more forceful “ZEDEs are bad
because they’re going to take your land.”

A national protest movement was born, and prominent politicians turned against the
project. In 2021, Xiomara Castro, the wife of the ousted President Zelaya, made repealing
the ZEDEs a central promise of her election campaign. The zones became associated
with the corruption of Juan Orlando Hernández, the president at the time, whom many
Hondurans now revile. Castro won with a clear majority. In 2022, Honduras’s Congress
unanimously repealed the law and passed a constitutional reform that would abolish the
three existing ZEDEs. “Never again will we carry the stereotype of the banana republic,”
Castro declared to the U.N. General Assembly a few months later.

There was one problem, however: Congress, mired in competing legislative priorities,
failed to ratify the reform. Furthermore, the original ZEDE law guaranteed the
companies 50 years of legal stability — no matter what changes were made after a zone
was founded. The net result is that Próspera is in a state of legal limbo.

Delgado seemed bewildered by the staunch opposition to Próspera. How had his dream
to enrich Central America become a political piñata? “We’re not crooks,” he told me.
“We’re just guys trying to get something good done.” He said he was inspired to help
found Próspera after reading Machiavelli’s writings on the impossibility of reforming a
system from within. “The idea is that if you go to a place where nothing, nobody has a
stake, there’s no entrenched interests, you can make really deep reforms that won’t affect
any of the players,” he said. Years of dysfunction and corruption would be replaced by
radically simple governance. A free market and political stability would attract top
innovators and investors from the West while empowering Latin America’s legions of
microentrepreneurs — the guys on the side of the road selling oranges or “a chicken leg
in a bag,” Delgado said — to grow real businesses.

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.”

(https://www.nytimes.com/2024/08/28/magazine/prospera-honduras-crypto.htm)