Crack-Up Capitalism Chapter 10: Silicon Valley Colonialism
What if a Stanford professor gave a talk about bringing back colonialism and the biggest newspapers in the world said it sounded like a great idea?
That’s basically what happened. And Chapter 10 of “Crack-Up Capitalism” by Quinn Slobodian (ISBN: 9781250753908) tells the whole story.
The Professor Who Wanted to Copy Hong Kong
In 2009, a Stanford economics professor named Paul Romer asked a big question. Why are some countries rich and others poor? His answer was simple: rules. Not geography. Not resources. Just rules. The right laws about taxes, property, and labor. The right style of government. Even the right cultural norms.
And his favorite example? Hong Kong.
Hong Kong was a strip of coastline governed by British rules, not Chinese ones. When China copied the Hong Kong model in the late 1970s, it started catching up. Romer looked at this and thought: what if we could make this happen on purpose?
Here’s how he framed it. Convince a poor country to give up a piece of empty land. Let a richer country run it with “good rules.” Watch capitalism grow. He called these “charter cities,” borrowing the Silicon Valley startup language. “Start-up political jurisdictions.”
When someone pointed out that Hong Kong was a colony with no local democracy, Romer had a funny answer. Hong Kong was a democracy, he said. It just “happened to be not a democracy that involved the local residents.” And the Opium Wars that made the whole setup possible? Just a “historical accident.”
The First Attempts: Madagascar and Honduras
Romer tried his idea first in Madagascar. He found an ally in the country’s president, a dairy businessman turned politician. The president agreed to create two charter cities. But other elites in Madagascar didn’t like the idea of carving up their country. They backed a coup in 2009 and the president was out.
So one coup closed a door. But another opened one.
Honduras was next. This was a country with a long history of foreign control. Banana plantations run by American companies. US-backed military dictatorships from the 1960s onward. Export processing zones since 1976, with tax breaks for companies near the Caribbean coast. By 1998, these zones could be created anywhere in the country.
After a coup in 2009, the new Honduran government was full of US-educated advisors looking for ways to attract investment. They even floated the idea of “superembassies,” areas run by another country’s laws. When Romer’s charter city talk went online, they called him up. By late 2010, Honduras had agreed to become “the site of an economic experiment.”
REDs: Colonies Inside a Country
The legal form was called a RED, a Special Development Region. Created through a constitutional amendment, REDs would be run by foreign partners. A foreign nation would set up the courts, train the police, run schools and hospitals. REDs could even enter treaties with other countries and set their own immigration policies.
The New York Times asked: “Who wants to buy Honduras?” The Wall Street Journal praised the idea. The Economist imagined “Hong Kong in Honduras” with skyscrapers and millions of people around a natural harbor.
But here’s the thing. The coverage glossed over what was actually happening in Honduras. Thousands of illegal detentions. Murders and disappearances of protesters and activists. One lawyer who challenged the constitutionality of the REDs was shot dead just hours after a television interview where he spoke against the scheme.
Romer tried to get Canada to run the charter city. Canada was already the biggest foreign investor in Honduras, ahead of the US. He even imagined Canadian Mounties patrolling the zones. But Canada said no.
The Libertarians Move In
The people who got most excited about the Honduras project weren’t countries. They were libertarian entrepreneurs who wanted their own mini-states.
Patri Friedman, who had talked about “a thousand nations” at conferences with Peter Thiel, saw this as the big opportunity. Government services were 30 percent of global GDP. “People talk about disrupting medicine or energy or education,” he said. “Those are small potatoes. This is the big one.”
His pitch was pure Silicon Valley. “If laws were software,” he asked, then why was “America’s operating system written in 1787?” Better to find a place where you could write new code from scratch.
Friedman gathered investors from Thiel’s circle and formed Future Cities Development. They signed a deal with Honduras to build a zone.
Other investors piled in. One wanted to create an “anarcho-capitalist paradise.” He predicted that zones would spread until nation-states withered away, like the postal service being replaced by email and private couriers. Another investor asked the question he thought was the only one that mattered: “Which state would you buy?”
Prospera: The Startup City on a Caribbean Island
The most concrete project was called Prospera. Built on a 58-acre zone on the island of Roatan, off the north coast of Honduras, it broke ground in May 2021 with $17.5 million in startup capital.
Prospera was a ZEDE (Zone of Employment and Economic Development), the legal successor to the REDs. ZEDEs stayed under Honduran criminal law but could have their own courts, security forces, education systems, and legal codes. One advisor put it clearly: “We are a private venture in which all relationships are determined by contracts.”
And here’s a detail that says a lot. One of the selling points of living in Prospera was that you didn’t actually have to live there. Just like investors don’t live in the Cayman Islands where their funds are registered. The real treasure of these zones wasn’t land or buildings. It was their status as a legal jurisdiction. A new place to pick and choose regulations.
Prospera modeled itself partly on Estonia, the small Baltic country that let people become “virtual residents” for a small fee. The dream was governance by internet. Instead of citizens with rights, you had “contract citizens” who signed an “agreement of co-existence.” Disputes weren’t crimes. They were breaches of contract. And the senior arbiters who decided those disputes? Three elderly white men from Arizona.
The Backlash
The people of Honduras noticed what was happening. Critics saw a direct line from the old banana plantations to the sweatshop zones to the startup cities. One journalist pointed out that the zone law was passed on the hundred-year anniversary of General Manuel Bonilla’s granting similar privileges to American banana companies.
Locals complained of an “invasion of model cities created for the benefit of the rich.” A Honduran fisherman put it best. The ZEDEs, he said, allowed investors to “kidnap the state.”
In September 2020, Prospera’s founder Erick Brimen had a shouting match with Roatan locals while his security guards stood off against local police. He went on local TV trying to smooth things over, showing slides from Ernst & Young and headshots of advisors from Dubai and London. He didn’t seem to understand why people with centuries of history of foreign control were upset about his plans to “disrupt” their government.
Democracy Strikes Back
Late in 2021, something old-fashioned happened. People voted.
Xiomara Castro won the election. She was the wife of the president who had been overthrown in the 2009 coup. She put the ZEDEs at the top of her list of things to get rid of.
Then the old president who had created the ZEDEs was extradited to the United States on charges of trafficking tons of cocaine. In April 2022, the Honduran congress voted unanimously to overturn the ZEDE law.
The libertarian investors weren’t done fighting though. They hoped that international trade agreements would protect their investments, letting them sue the Honduran government if laws changed against them. As one former investor said without any irony: “Libertarians don’t like international trade law but it turns out international trade law is tremendously helpful.”
The Fever Never Breaks
So Honduras shut the door. But zone fever burns on.
There’s always another country willing to try. El Salvador’s president Nayib Bukele unveiled plans for a Bitcoin City in 2021, powered by a volcano, with a central square shaped like the Bitcoin logo. Startup city advocates were in talks with him. They were also eyeing Jair Bolsonaro’s Brazil.
Meanwhile, back in the US, there was an ironic twist. Oliver Porter, one of Prospera’s advisors, had led the secession of Sandy Springs, Georgia, from Atlanta in 2005, outsourcing all government services to private companies. But in 2019, Sandy Springs reversed course. Private contractors had become too expensive. The city went back to the public option.
Slobodian ends the chapter with a thought that stuck with me. The road toward pure economic freedom with no democratic accountability is not a one-way street. In Chile, Peru, and Honduras itself, people were working to rewrite their constitutions through democratic assemblies. The dream of turning the earth’s surface into a circuit board with swappable parts still has one big opponent: regular people who want a say in how they are governed.
History shows there is always another fantasy island on the horizon. But history also shows that people keep fighting back.