Friedman insanity goes 2.0

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There's only one country in Central America where the same kind of right-wing nuttiness rules as on our own isthmus with il Duce, Rico Martinelli the 1st, and that is the tiny Republic of Honduras. Its president, Porfirio Lobo, was the ultimate outcome of a narco-coup in 2009 and is one of the very few leaders not afraid to be seen with Martinelli. Since the coup, Honduras is once again a regional leader in human rights abuses, assassinations of journalists, illegal land grabs, corruption and similar stuff that oligarchs and plutocrats need to stay ahead of the game.

So, no one should be surprised to see Friedman enter the scene. Not Milton Friedman, but close. Milton, if you recall dear reader, was behind the economic disaster in Chile that in just under a decade doubled poverty, quadrupled unemployment and reduced wages with 40%, which he and his Chicago Boys then tried to pass off as "Chile's miracle". It took socialist recipes and a lot of suffering to repair the damage of economic and ideological insanity that could, by the way, only be executed under a brutal military dictatorship.

And now we have grandson Friedman, Patri Friedman, who is trying to launch a similar scheme in post-coup Honduras, albeit on a somewhat more limited scale. The Hondurans, who are, like Panama, "open for business", have amended their constitution to allow for "the creation of special autonomous zones exempt from local and federal laws". Sort of like independent city states. And Friedman's company, Future Cities Development Inc., has "signed a non-binding memorandum of understanding to build a city in one such zone starting next year", we read on

"One potential model is something Friedman calls Appletopia: A corporation, such as Apple, “starts a country as a business. The more desirable the country, the more valuable the real estate,” Friedman says."

Future Cities follows this approach, describing its mission as bringing “Silicon Valley’s spirit of innovation to the implementation of cutting-edge legal systems in new cities," most likely in the role of the cities’ master developer. Citing laissez-faire entrepots such as Hong Kong and Singapore as examples, the company’s founders believe that strong property rights and business-friendly regulation are key to creating jobs, stimulating investment, and lifting millions out of poverty, a la China’s special economic zones. "The evidence is much stronger," Friedman replies when asked if he’s building another libertarian utopia, "that rule of law, fairness, and a lack of corruption leads to more economic growth than low taxes." (Not that they’re mutually exclusive, as Singapore demonstrates.)

Now, we have nothing against city states. In fact, they may be much more robust than too-big-to-fail nations and currencies. However, this Friedman 2.0 approach won't work, just like version 1.0 wasn't ready for release either.

First of all, running a country like a business usually ends in disaster. See Chile, but also our own Panamanian "government of entrepreneurs", which is in reality a government of crooks with no entrepreneurial skills whatsoever, and these business-governments routinely end up as criminal rackets and in complete lawlessness (Berlusconi, Putin, Martinelli, etc.). Civilization is built on human rights, not on business-friendly regulations and laissez-faire nonsense.

The absence of rule of law in countries like Panama and Honduras in itself is a threat to any initiative like the one by Friedman, no matter how much drivel they emanate about "cutting-edge legal systems". In Honduras the government represents an elite that is only able to hold on to power through the barrel of a gun. Whomever thinks these people will allow any significant competition on their home turf - constitutional amendments or not - without trying to steal their piece of the cake doesn't know shit about this part of the world. Try a search on "Lucom" and "Panama".

Examples like that of China - where success is built on slavery pure and simple - aren't very convincing either. If the theories by Friedman et al were valid, Colón would be a prosperous city with no unemployment at all instead of the poverty stricken dump that it is. For over a decade the Panamanians have been babbling about how the Canal and the former Canal Zone would lift Panama into a "democratic version of Singapore". Didn't happen. In other words, for every example these city builders give, there are at least twice as many that illustrate the opposite of their Libertarian daydreaming, or they conveniently leave out such small matters like slavery (China, Dubai etc.) or other human rights abuses (Chile, Singapore, Honduras etc.).

These schemes for wealthy enclaves in poverty ridden countries don't work. It'll only flourish if everything around it is repressed - which is why they choose places where the (military) elite will protect them - as long as they share the loot - like Chile and Honduras instead of, say, Detroit or Somalia. On top of that, they're immoral. It's exclusively based on what the participants can get away with, and we have more than enough of that around here already.

4 thoughts on “Friedman insanity goes 2.0

  1. It won’t be long now before Honduras zips to the number 1 retirement destination spot in Escape Artist and the likes. I wonder how much a change in the constitution will set you back in Honduras. Thank god the whole concept is based on lack of corruption.

  2. If you want to understand the theory of competitive governance, you have to ask a more basic question about the conduct of states. What incentive does a state have to do the things that you and I would like it to do?

    The usual answer is that, if the rulers of a state do otherwise, they will be removed from power, either by a violent revolution or by a peaceful vote, and they will then cease to enjoy whatever advantage they once obtained through their command of the state; knowing this, they will try to do what is necessary to avoid being thus deposed.

    In some places, this threat seems to have led to good results; in others, the results have been mixed; and in others yet, the results have been heartbreakingly flawed. And there is no reason to believe that things will get much better in the near future.

    Competitive governance is founded on the hypothesis that this sad state of affairs is not incorrigible, and that, in fact, the same discipline of the marketplace that upholds the quality of all the goods we consume on a daily basis can, under certain circumstances, likewise uphold the quality of that subset of those goods that are produced by states, such as policing, courts and infrastructure.

    In a marketplace of charter cities, those charter cities that best produce such goods will attract more customers, profit, grow, and multiply, while those that produce them badly will decline and eventually be acquired by their more successful competitors. This survival of the fittest gives the developers of charter cities a powerful incentive to make their city a success by inventing new and better ways to produce public goods. It also ensures that mistakes are quickly corrected and do the least damage: not only can the residents of failing cities leave for the greener pastures of more successful cities, but after they do so, the land and capital consumed by the failed city will quickly be returned to productive use when it is purchased and renovated by the developers of other charter cities.

  3. For those who don’t know; there is a great story in The Atlantic about the so-called “charter cities” and Paul Romer – who is promoting the idea.

    It’s not a new idea at all. There have been hundreds, if not thousands, of such foreign-run places in southern latitudes. The Dutch alone ran such places in Central and South America, the Caribbean (the first free trade zone in the world was on St. Eustatius), Africa and the far East.

    Those places, with varying degrees of success didn’t rely any more on market forces to maintain good governance than Hong Kong did, but were instead ruled by colonial power for profit. I think it is a very sad state of affairs indeed if the only measure for “success”, as in the comment above, is the ability of such charter cities to “attract more customers, profit, grow, and multiply”.

    Why not build one that guarantees human rights, a decent life, the best health care and education available, participatory democracy, freedom of information and make thát multiply? Answer: Because these colonies can only exist based on exploitation. I’m sure they’ll be able to turn this Honduras settlement into a first-world enclave – built by paying third world wages.

    And that brings me to another reason these projects are eventually not sustainable and do not contribute to abundance other than for its principals: In the Atlantic article you’ll find the example of how these ideas on Madagascar were almost implemented and then went hopelessly wrong, with revolution and all, because the people there weren’t gonna put up with a rich men’s enclave at their expense. I mean, if this is really such a great recipe, go do it in Detroit.

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