Zone for Employment and Economic Development

Based on Wikipedia: Zone for Employment and Economic Development

In 2021, a small company on a Honduran island sent a letter to the United States State Department. The message was remarkable for its audacity: please "encourage" Honduras to respect our fifty-year agreement. The company, called Próspera, was essentially asking a superpower to pressure a sovereign nation into honoring a deal that many Hondurans considered illegitimate from the start. The threatened consequence if Honduras didn't comply? An eleven billion dollar lawsuit.

This is the story of the Zones for Employment and Economic Development—known by their Spanish acronym ZEDE—one of the most ambitious and controversial experiments in governance of the twenty-first century. It's a tale of constitutional crises, fired judges, libertarian dreams, and the fundamental question of whether you can buy your way out of democracy.

The Dream of a City from Scratch

The basic idea sounds almost reasonable when you first hear it. What if you could build a city from nothing, in an undeveloped part of a country, with its own laws optimized for business? No legacy regulations. No entrenched bureaucracy. Just a clean slate where entrepreneurs could experiment with new forms of governance.

This isn't entirely novel. China did something similar with Shenzhen in 1980, transforming a fishing village into a megalopolis of twelve million people by giving it special economic rules that differed from the rest of the country. Hong Kong and Singapore became global financial centers partly because of their distinct legal systems. Dubai built an entire district where British common law applies instead of Emirati civil law, specifically to attract international business.

The ZEDEs took this concept and pushed it further. Much further.

A ZEDE wouldn't just have different tax rates or relaxed import duties. It would have its own political system. Its own judicial tradition. Its own economic laws that could suspend the national laws of Honduras entirely. Each zone would be governed by a "technical secretary"—not elected by the people who lived there, but chosen by a committee appointed by the president of Honduras.

Think about what this means for a moment. You could be a Honduran citizen, living on Honduran soil, but the laws that governed your daily life would be decided by a private corporation and a committee you had no voice in selecting.

Birth from Crisis

To understand how such a radical proposal ever became law, you need to understand the chaos from which it emerged.

In 2009, Honduran president Manuel Zelaya was removed from office in a coup. Whether this was a legitimate constitutional action or an illegal military takeover remains disputed, but the international community largely condemned it. Porfirio Lobo Sosa came to power in the aftermath, leading a government that many countries initially refused to recognize.

It was Lobo's administration that first proposed special zones—though they were initially called Regiones Especiales de Desarrollo, or Special Development Regions (REDs). The Supreme Court of Honduras struck down the proposal as unconstitutional in 2011.

What happened next would prove crucial to everything that followed.

In September 2012, the Honduran Congress voted to remove four of the five Supreme Court justices who had ruled against the special zones. The official reason was that they had violated judicial ethics. Critics called it a purge. With the court reconstituted, Congress then amended the constitution itself, and in 2013, passed the law creating ZEDEs.

The succeeding president, Juan Orlando Hernández, continued the ZEDE project. Both he and Lobo left office under clouds of corruption allegations. Hernández was later extradited to the United States on drug trafficking charges and in 2024 was sentenced to forty-five years in federal prison.

This is the political soil from which the ZEDEs grew.

What the Zones Promised

Proponents of ZEDEs pointed to ambitious goals. They envisioned international logistics centers that could process goods on a massive scale, similar to the Colón Free Trade Zone in Panama, which handles more cargo than any other free zone in the Western Hemisphere. They imagined business courts that would resolve disputes using international standards, attractive to foreign investors wary of unpredictable local judicial systems.

The list of aspirations was long: special investment districts for the service sector, zones for renewable energy development, agro-industrial areas for high-quality agricultural exports, and tourist destinations in undeveloped coastal regions. Economists at Guatemala's Universidad Francisco Marroquín projected that a successful ZEDE could reach thirty-six thousand dollars in gross domestic product per capita by 2050—roughly comparable to developed European nations.

But such projections required assuming these zones would replicate the growth trajectory of China's special economic zones. China's success, however, came with the backing of an authoritarian state capable of massive infrastructure investment and a population of over a billion providing both labor and domestic market. Honduras, a country of ten million with a GDP per capita of about three thousand dollars, faced rather different circumstances.

Próspera: The Flagship Experiment

The most prominent ZEDE to actually get built was Próspera, located near a village called Crawfish Rock on the island of Roatán, off Honduras's Caribbean coast. Roatán is known for its coral reefs and cruise ship tourism—an unlikely setting for a libertarian governance experiment.

Próspera marketed itself as a technology and services zone. Its founders, including entrepreneur Erick Brimen, promoted a vision of efficient private governance that could demonstrate how markets might provide services traditionally reserved for governments. The zone's laws allowed for expansion along the Honduran coast, and in 2021, they announced plans to add an area near La Ceiba on the mainland.

The company adopted a motto that would prove contentious: "Built to Last."

What made Próspera particularly controversial wasn't just its existence but its architecture of permanence. The zone was established with a fifty-year sunset clause written into its founding documents. It signed what were called Legal Stability Agreements—contracts that, according to Próspera, bound Honduras to maintain the zone's special status regardless of future electoral outcomes. These agreements were structured under a bilateral investment treaty with Kuwait, meaning disputes would be settled by international arbitration tribunals rather than Honduran courts.

In practical terms, Próspera's founders had engineered a governance structure designed to be, as they put it, "functionally unrepealable."

The Other Zones

Próspera attracted the most attention, but it wasn't alone.

Ciudad Morazán, near the city of Choloma in the Cortés Department, took a different approach. Rather than targeting technology entrepreneurs, it focused on manufacturing workers—the laborers in Honduras's maquila factories, the assembly plants that produce clothing and electronics for export to the United States. Phase one consisted of a gated housing community for low-income workers. Phase two would add manufacturing facilities within the same gated compound.

The concept raised immediate questions. Workers would live in housing provided by their employer, in a zone where their employer also controlled the legal system. To critics, this looked less like innovation and more like a company town from the nineteenth century, when American coal and textile companies built entire communities where workers lived in company housing, bought goods at company stores, and had little recourse against employer abuses.

ZEDE Orquídea, in the Choluteca region near the Nicaraguan border, focused on agriculture. Its parent company, Agroalpha, planned to construct large greenhouses for growing produce for export. In a detail that captures the unusual nature of these zones, Orquídea adopted the common law of the American state of Delaware as its governing legal framework. Delaware, a tiny state with fewer than a million people, is famous for its business-friendly corporate laws—more than half of all publicly traded American companies are incorporated there. Now, through Orquídea, Delaware's legal traditions would govern a patch of Honduran countryside.

The Projects That Failed

Not every proposed ZEDE succeeded in launching. Several projects collapsed before breaking ground, their failures illuminating the gap between libertarian theory and Honduran reality.

A ZEDE was proposed for Peña Blanca, chosen for its proximity to the agricultural and manufacturing heartland of the Sula Valley. The project never received local support.

Another proposal centered on the Basilica de Suyapa, Honduras's most important religious site, located in the capital district. The plan was to create a religious tourism zone around the shrine. Local residents rejected it.

Perhaps the most ambitious failed project was a distributed ZEDE in the Department of Valle, spread across three municipalities on the Pacific coast. Nacaome, the departmental capital, would become an agricultural research center. Alianza, on the border with El Salvador, would serve as a logistics free trade zone. And the island city of Amapala would be transformed into a megaport on the Gulf of Fonseca.

None of it happened. The common thread in these failures was consistent: communities said no.

The Constitutional Battle

The United Nations Office of the High Commissioner for Human Rights in Honduras was among the early critics, characterizing ZEDEs as an attack on national sovereignty and citizens' constitutional rights. Honduran civil society organizations raised alarms about zones where elected officials had no authority and residents had no democratic voice.

When Xiomara Castro won the Honduran presidency in 2021, she campaigned explicitly against ZEDEs. She was the wife of Manuel Zelaya, the president whose 2009 removal had set in motion the political chaos that enabled ZEDEs in the first place. Her victory represented something of a historical correction.

In 2022, the Honduran Congress repealed the constitutional amendments and laws that had created the ZEDE regime. But here the careful legal engineering of the zones' founders created complications. The three existing ZEDEs—Próspera, Ciudad Morazán, and Orquídea—claimed to be grandfathered in under their fifty-year agreements.

Próspera went further, filing a claim against Honduras at the World Bank's International Centre for Settlement of Investment Disputes. The company argued that Honduras's attempt to repeal the ZEDE law violated its investment protections under the bilateral treaty with Kuwait. The claimed damages? Nearly eleven billion dollars—a sum approaching a quarter of Honduras's entire annual economic output.

In September 2024, the Honduran Supreme Court declared zones for employment and economic development unconstitutional. The legal battle over what happens to the existing zones, and whether Honduras will face billions in international arbitration penalties, continues.

The Deeper Questions

The ZEDE saga raises questions that extend far beyond Honduras.

First, there's the matter of democratic legitimacy. Can a government bind its successors for fifty years? Can it create zones beyond the reach of future democratic decisions? There's a reason most democratic constitutions make themselves amendable—because circumstances change, and each generation has the right to govern itself.

The ZEDE founders would argue they were simply providing legal stability, which is essential for long-term investment. Who would pour billions into infrastructure if the next government could simply nationalize everything? But there's a difference between reasonable investment protections and creating permanent enclaves where host country laws don't apply.

Second, there's the question of consent. The ZEDEs were created through a process that began with a constitutional crisis and a reconstituted supreme court. They were furthered by administrations now widely viewed as corrupt. Whatever the legal technicalities, the Honduran people have repeatedly signaled they don't want these zones. At what point does investment protection become something closer to economic colonialism?

Third, there's the model of governance itself. The ZEDE vision essentially proposes that private companies can provide governance more efficiently than states. But governance isn't primarily about efficiency—it's about legitimacy, accountability, and the protection of rights. A corporation's fiduciary duty runs to its shareholders, not to the residents of territories it administers. History offers cautionary tales about what happens when commercial entities exercise sovereign powers, from the British East India Company to the Belgian Congo.

Echoes Elsewhere

Honduras isn't the only country to experiment with such zones. The concept of "charter cities"—new urban developments with different rules than the surrounding country—has attracted serious academic attention and investor money.

Paul Romer, a Nobel laureate economist, promoted the idea for years, though he resigned from a charter city project in Honduras in 2012 over concerns about transparency and democratic input. The free city concept has attracted interest from libertarian thinkers who see it as a way to experiment with minimal government.

Similar zones exist in various forms around the world. Dubai's financial district operates under common law despite being in a civil law country. Singapore essentially is a city-state with its own governance. China's special economic zones, while not privately governed, operate under different rules than the rest of the country.

But there's a crucial difference. Dubai's financial district doesn't claim to be unrepealable. Singapore is a sovereign nation, not a zone imposed on an unwilling population. China's special zones remain under the ultimate authority of the Chinese state. The ZEDE model was distinctive in its attempt to permanently remove territory from democratic control.

What Remains

As of late 2024, the legal status of Honduras's ZEDEs remains contested. The Supreme Court has ruled them unconstitutional. The government has repealed their enabling laws. But the zones' investors continue to claim their fifty-year agreements remain binding under international investment treaties.

The eleven billion dollar question—quite literally—is whether international arbitration tribunals will agree. If they do, Honduras would face a penalty equivalent to years of government spending, imposed by a tribunal for the crime of asserting democratic control over its own territory.

The ZEDE experiment has already influenced debates about governance and development. For some, it represents a cautionary tale about the dangers of allowing private entities to carve out territory beyond democratic accountability. For others, it illustrates how resistance to market-based governance can trap poor countries in cycles of poverty and corruption.

Perhaps the most honest assessment is that the ZEDEs were an attempt to solve real problems—Honduras's weak institutions, corruption, and poverty—through means that created new problems of legitimacy and consent. The Honduran people, through their elected representatives and courts, have now rejected that bargain. Whether the international legal system will allow them to do so remains to be seen.

What's certain is that this tiny Central American country, home to coffee plantations and Caribbean reefs, has become ground zero for one of the twenty-first century's defining debates: Who gets to make the rules, and can enough money buy you out of having to follow them?