- Free Private Cities Foundation
- Expanding beyond El Salvador
- What does private management mean for a ZEDE?
- How will local residents benefit from ZEDEs?
- Possible displacement of local residents
The downside of creating small crypto utopias in Latin America is the freedom from both taxes and regulations. This movement is led by the Free Private Cities Foundation, a company that promotes the idea of “voluntary, contract-based societies” and supports private cities around the world. Their slogan is “the future of governance is private”.
Founded by Dr. Titus Gebel, the Free Private Cities Foundation has encouraged the Salvadoran government to place its impending Bitcoin City in corporate hands, allowing the city to be governed by the private sector, according to the MIT Tech Review.
El Salvador’s plan for a geothermal bitcoin city at the foot of a volcano is just the tip of the iceberg of special tax-free economic zones that extend to various countries abroad.
In Brazil, the concept of corporations controlling privatized cities is also being spread by Gebel, who hopes to create several international “prosperity zones.” The Free Private Cities Foundation is also targeting Honduras.
After a constitutional amendment in 2013 that allowed special zones to be run by companies, Honduras has three main ZEDEs: Ciudad Morazán, Orquidea and Prospera. ZEDEs are zones of economic development and employment that are independently managed by corporations and are commonly referred to as “free private cities.”
Jamilia Grier, founder and Chief Executive Officer of ByteBao, a Web3 legal consulting firm, is somewhat skeptical about the perspectives of ZEDEs as private cities.
“This is sort of like the perfect storm between political, economic, and really just your physical infrastructure as far as building a city. The question is: how are those governed?” Jamilia Grier said to Fortune.
According to a report from the NLG Delegation Investigation of ZEDEs in Honduras, privatized city-states “exist independently from the legal, administrative and social systems of the Honduran state.”
It means that such cities are not obligated to pay taxes on imports or exports and are allowed to create their own forms of government, courts, schools, and welfare systems. Some critics believe that the lack of regulation will lead to a situation where such cities will become centers of criminal activity.
Even if independent cities surrender sovereignty to foreign corporations, in the view of the Free Private Cities Foundation, they create safe havens in “one of the most violent countries in the world.” Last year, Honduras had the second-highest homicide rate after El Salvador. Besides, Honduras has the world’s highest femicide rate.
On March 15, the Foundation announced that it is going to continue developing the private city of Morazán, described on its website as a “blue-collar ZEDE,” where people can escape structural problems that haunt Hondurans in their daily lives, including “exorbitant violence.” In addition, Morasan will have residential areas that can accommodate 9,000 residents, commercial centers, schools, parks and an “industrial area.”
According to their statement released in March, “Morazán is a community designed to encourage entrepreneurship; the first commercial tenants have already arrived. The tenants choose to enter voluntary contracts that spell out their rights and responsibilities so they can be sure the rules won’t be changed on them.”
In exchange for the safety of the new cities, ZEDE residents enter into contracts with private corporations and, ideally, can live in a crime-free haven.
While the creators of ZEDEs promote ideas of a higher standard of living for local residents, the benefits may be overstated. Although ZEDEs are marketed as a source of employment in Honduras, where over 60% of the country lives in poverty, when one of the country’s three main ZEDEs, Próspera, was built on the Honduran island of Roatán, most of this construction work was outsourced rather than offered to indigenous Hondurans.
Security can be achieved by keeping natives out of cities. This is a far cry from helping local citizens. According to economist Carlos Urbizo Solis, ZEDEs tax breaks would contribute to the country’s stark income inequality and benefit only a select few.
As the national government attracts foreign investment to create ZEDEs, locals are distressed about corporations encroaching on their land. Critics have emphasized that the areas allocated for ZEDE construction are ancestral Garifuna lands, and indigenous peoples have lived there for thousands of years. The construction would result in the mass displacement of indigenous people.
Many Honduran citizens oppose the existence of ZEDEs, citing such issues as the sale of private territories and lands, as well as rising poverty rates. And because ZEDEs are independent jurisdictions with their own laws, they have full autonomy in the criminal justice system.
“We are seeing a new era of rapid technological innovation. Some of these innovations will be sustainable and some will be unsuccessful, but will provide valuable insights to enable further growth. I think crypto cities are too early to tell, but I do love the entrepreneurial spirit and innovation this movement represents,” said Ryan Hunter, CEO of Crypto Cannabis Club.