By Maxim Lott
Small government and
free-market capitalism are about to get put to the test in Honduras, where the
government has agreed to let an investment group build an experimental city
with no taxes on income, capital gains or sales.
Proponents say the tiny,
as-yet unnamed town will become a Central American beacon of job creation and
investment, by combining secure property rights with minimal government
interference.
“Once we provide a sound legal
system within which to do business, the whole job creation machine – the
miracle of capitalism – will get going,” Michael Strong, CEO of the MKG
Group, which will build the city and set its laws, told FoxNews.com.
Strong said that the agreement
with the Honduran government states that the only tax will be on property.
“Our goal is to be the most
economically free entity on Earth,” Strong said.
Honduran leaders hope that the
city will lead to an economic boom for the poverty-stricken country south of
Mexico. The average income in Honduras is $4,400 a year.
“[It] will bring a lot of
investment into the country [and be] a center for many employment opportunities
for our people,” Honduran President Porfirio Lobo Sosa has said.
The laws in the city will be
separate from those in the rest of Honduras. Strong said that the default law
that will be enforced in the city will actually be based on Texas state law,
which has relatively few regulations.
“It will be Texas law with
more freedom of contract. Texas scores well on state economic freedom
rankings,” he explained.
“Texas law is also very
familiar to American business people, and it is very familiar to Hondurans,
because a lot of Hondurans have gone there or have family there.”
Investors who think the city
will do well will also be able to buy land there.
“There will be a free market
in land,” Strong said.
The rules for immigrating to
the city have yet to be finalized, but are expected to be loose.
“It will be designed to be
very welcoming to those with a minimum threshold of skills or capital,” Strong
said. However, businesses in the city will be required to employ a minimum
proportion of native Hondurans – a requirement imposed at the outset by the
Honduran government to ensure that the city’s benefits largely go to Hondurans.
To insure the city against
political change, the Honduran Legislature has agreed that a two-thirds
majority will be required to interfere with the city.
MKG will invest $15 million to
begin building basic infrastructure for the first model city near Puerto
Castilla on the Caribbean coast, said Juan Hernandez, president of the Honduran
Congress. That first city would create 5,000 jobs over the next six months and
up to 200,000 jobs in the future, Hernandez said.
Strong said construction could
begin in months.
“First, we will build the
critical infrastructure -- roads, water, power, sewers," Strong said.
"In collaboration with the [Honduran] government, we will then create the
city’s government system and the security, and 3 to 6 months after that we will
build the first factories.”
The MKG Group city is the
first to get approval, but Honduras plans to create other “free cities” as
well.
The bill to allow the creation
of such cities passed the Honduran Legislature nearly unanimously, by a vote of
126 to 1. But not everyone is on board with the project. Left-wing Hondurans
have filed a complaint before the Honduran
Supreme Court, arguing that the free cities project violates their constitution
and treats “national territory as a commodity.”
The indigenous Garifuna people
in Honduras also have protested the creation of free cities, saying that they
are worried the cities will be built on their land.
Strong said that they need not
worry.
“The media reports are full of
inaccuracies. We're not even remotely close to [the Garifuna]. We're literally
hundreds of miles away,” he said.
Additionally, the new city
will be built on unoccupied land.
“We will be selecting
unoccupied land so that everyone will be opting in by choice,” Strong said.
But some oppose the project
being built anywhere in Honduras.
“I can't help but suspect that
the promise of plenty of jobs is nothing but a Trojan horse,” Teofilo Colon
Jr., who runs the Garifuna cultural group Being Garifuna.
“The prospect of setting up a
charter city, with its own laws, [that] is sovereign to itself and doesn't have
to pay taxes, is a dubious one at best. It'd be tantamount to inviting
pirates to come in and have free reign to essentially raid the country's
resources/riches.”
The MKG Group says its plan,
however, is not to take advantage of natural resources, but rather to attract
entrepreneurs using good laws and low taxes.
Strong cited Hong Kong as a
city that prospered under that model.
“Hong Kong’s poverty once was
roughly on the level of Africa. Today it is one of the wealthiest places.”
Strong says that the same
could happen in Honduras.
“We'll see Hondurans having
more jobs, higher income, and more security than they've ever had.”
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