Wednesday, September 26, 2012

Charter Cities project gets a rude wakeup call

So Paul Romer has officially ruled himself out of the first Charter City project in Honduras. Prof Romer had originally joined hands with the government of Honduras to pursue his dream project of establishing a  RED (Region Especial de Dessarrollo) on public private partnership basis to develop a model city. He was appointed a member of the five-member Transparency Commission and made to believe that it would have sweeping powers in ensuring the effective implementation of his new rules-based RED. 

It appears that all that was mere posturing and the Honduras government has been taking the professor and his colleagues for a ride. The Honduras government has entered into an agreement with a private party, without apparently any of the required due diligence, and have even refused to share a copy of the agreement with Prof Romer. 

Now there is nothing surprising about this turn of events. In fact, the Honduras establishment clearly saw the Charter Cities project as a very convenient alibi to push through a public private partnership agenda which had cronyism and corruption written all over it. There is no need of the wisdom of hindsight to have perceived the preferences of the Honduras government. For this would have been the case with the overwhelming majority of governments who volunteered for such projects. One can think of many state governments in India not being averse to accepting an offer from a reputed professor which would provide the fig leaf for them to pursue massive rent-seeking resource theft. 

In fact, one could say that there is an adverse selection problem with government motivations. Given the practically far-fetched nature of the project (and why that is impractical is another debate, partially covered here), governments which would agree to embrace such projects are more likely than not be motivated by desires other than national economic development. The stakes are simply too high and incentives too misaligned for the final outcome to be anything different. 

Consider this parable. A group of robbers pass up the opportunity for their biggest ever heist as a treasure is being moved from one place to another. Furthermore, they also take the trouble of guarding the treasure from being looted and also ensuring that it reaches its final destination. Inconceivable?

1 comment:

KP said...

Dear Gulzar,

Inconceivable! Yes.

But I see a lot of other countries lining up as they see a similar opportunity ;) ( A corruption free economic zone - called Honesty Islands as a part of an election campaign - where the Island of honesty acknowledges it will be 50 % more honest than surrounding areas ... a subtle acknowledgement of what the surrounding areas ...) .. after all, we are pragmatists as far as integrity is concerned ... all in jest ... but I'm not sure .. someone just might pick up on the idea from my country :),

regards, KP.