April 25, 2012 - The Macdonald-Laurier Institute is proud to announce the publication of a study by world renowned economist Paul Romer and co-author Brandon Fuller examining an innovative approach to economic development in developing countries and Canada's potential leadership role. An op-ed based on the study by Mr. Romer and the chief of staff to the President of Honduras, Octavio Sanchez, is published in the Globe and Mail today. iPolitics also reprinted the executive summary of the paper here and Mr. Romer appeared on TVO's The Agenda with Steve Paikin to discuss his MLI paper. The full Globe and Mail column is copied below.


Urban Prosperity in the RED

By Paul Romer and Octavio Sanchez, Globe and Mail, April 25, 2012

With the near unanimous support of its Congress, Honduras recently defined a new legal entity: la Región Especial de Desarrollo. A RED is an independent reform zone intended to offer jobs and safety to families who lack a good alternative; officials in the RED will be able to partner with foreign governments in critical areas such as policing, jurisprudence and transparency. By participating, Canada can lead an innovative approach to development assistance, an approach that tackles the primary roadblock to prosperity in the developing world: weak governance.

Many people from around the world would like access to the security and opportunity that Canadian governance makes possible. According to Gallup, the number of adults worldwide who would move permanently to Canada if given the chance is about 45 million. Although Canada can't accommodate everyone who'd like to move here, it can help to bring stronger governance to many new places that could accept millions of new residents. The RED in Honduras is the place to start.

With half of its population in urban areas, Honduras is among the poorest and least urban countries in Latin America. About four million Hondurans now live in cities, a number the United Nations expects to more than double by 2050. The Honduran government sees this rapid urbanization as an opportunity for inclusive growth and reform.

Honduran congressional support for the RED reflects a clear understanding of the challenges the country faces. Inefficient rules are the major obstacle to peace, growth and development. These rules are difficult to change, especially in a society that suffers from fear and mistrust. Building a new city on an undeveloped site, free of vested interests, with trusted third parties, is one way to fast-track reforms that might otherwise take decades to achieve.

Canadians are increasingly aware of the limits of traditional aid but remain committed to the principle that supporting international development is not only in Canada's national interest but is the right thing to do. Recent trade agreements with Peru, Colombia, Panama and Honduras demonstrate that Latin America remains high on Canada's development agenda.

The RED offers a new way to think about development assistance, one that, like trade, relies on mutually beneficial exchange rather than charity. It's an effort to build on the success of existing special zones based around the export-processing maquila industry. These zones have expanded employment in areas such as garments and textiles, with substantial investment from Canadian firms such as Gildan, but they haven't brought the improved legal protections needed to attract higher-skilled jobs. By setting up the rule of law, the RED can open up new opportunities for Canadian firms to expand manufacturing operations and invest in urban infrastructure.

By participating in RED governance, Canada can make the new city a more attractive place for would-be residents and investors. It can help immediately by appointing a representative to a commission that has the power to ensure that RED leadership remains transparent and accountable. It also can assist by training police officers.

The courts in the RED will be independent from those in the rest of Honduras. The Mauritian Supreme Court has agreed in principle to serve as a court of final appeal for the RED, but Canada can play a strong complementary role. Because the RED can appoint judges from foreign jurisdictions, Canadian justices could hear RED cases from Canada and help train local jurists.

Oversight, policing and jurisprudence are just a few of the ways in which Canada can help. Effective public involvement will also be required in education, health care, environmental management and tax administration. Such co-operation can be based on a fee-for-service arrangement in which the RED pays Canada using gains in the value of the land in the new reform zone.

The world does not need more aid. As the Gallup numbers show, it needs more Canada – more of the norms and know-how that lead to the rule of law, true inclusion and real opportunity for all. Because only people who want to live under the RED's new system of rules would choose to move there, Canada's presence would not only be welcome but legitimate.

By working together, Canada and Honduras can do what traditional aid can't: offer people a chance to live and work in a safe and well-run city, one that provides economic opportunities for Canadians and Hondurans alike, and one that has the potential to inspire reform in the rest of Honduras and throughout the region.

Paul Romer is a professor of economics at the New York University Stern School of Business. Octavio Sanchez is chief of staff to the President of Honduras. Prof. Romer is co-author of a recent paper for the Macdonald-Laurier Institute on charter cities, economic development and Canadian opportunities.

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