LEAPs forward

By Eric Crampton 21/09/2014


Foreign Policy gives us a somewhat implausible critique of Honduras’s LEAP zones, the ZEDEs.

First, a bit of history. Paul Romer shifted from academic work on high-tech growth-theory macroeconomics to pursue institutional innovation. He realised, correctly, that you can’t do much to change a country. But you can, perhaps, make some progress in a small region. Set up a small autonomous zone in a developing country with access to sound law, sound money, property rights and decent infrastructure, and you’ll kickstart development not just for that special economic zone but also for the rest of the country through remittances at first, then through institutional leakage as the host country starts adopting the best parts of what makes the zone work.

I’ve been a fan of these for a while. A few years ago, a final exam question in my undergraduate Public Choice class asked students to imagine themselves a billionaire who wanted to make the world a better place: should the billionaire’s bequest go to Seasteads, or to Charter Cities?

Honduras changed its constitution to allow a few of these to emerge. The Zones for Economic Development and Employment, the ZEDEs, can now be created. They differ from charter cities in that they’re broader regions in which cities could be established, but they don’t have to be cities.

Mark Klugmann spoke about these at Mont Pelerin this year; here’s a Reason write-up from early August.

Now, over to Foreign Policy. The author there provides two critiques:

  1. The ZEDE board is stacked with Cato-type free-marketers;
  2. The zones, when established, will expropriate the current inhabitants who don’t always have well-documented rights to their property.
I believe the first one to be true. It’s because I believe the first one to be true that I put rather less weight on the second one. If there’s anybody who fights against government expropriation and eminent domain abuses, it’s Cato-type free-marketers. A bunch of Cato-type free-marketers are not likely suspects in a “expropriate peasant farmers to benefit big corporates” scheme.
The article’s worth reading for a bit of background. And Paul Romer tweets that he’s also a bit worried. I’m not worried about any zones that might be established by Klugmann’s group. If others use the provisions for setting up other zones, that could be different. 
My print piece in last week’s National Business Review hits on the ZEDEs. I wonder whether we could establish special economic zones here as experiments. Imagine getting rid of the RMA in a few areas and there reverting to tort and nuisance. 

Perhaps shifting to reforms in special economic zones is an abandoning of the prospect of large-scale reform in New Zealand. But perhaps it is also the best we can achieve under the current electoral system. It could also be a reasonable approximation of best-practice: try something new in a few places, see if it works, then either scale it up or end it depending on outcomes. The idea seems fertile. 

If it didn’t work, the harms are limited. But if it did….