It is often easy to take for granted the strong institutional backbones supporting highly-developed, western democratic nations like New Zealand.
Robust rule of law, separation of powers, governmental accountability, personal freedom, private property protection, bodily autonomy and social safety nets tend to exist with little conscious thought – or even appreciation – by many.
But, to developing nations, these are robust institutions to envy, as they are the fundamental building blocks of wealth creation.
Yet these nations often lack the history of Western nations, out of which these structures spawned. This posits a critical problem: If you are the leader of a struggling country, how do you build robust governing institutions while at the same time grappling with an array of thorny social issues like widespread corruption, high crime rates and rampant poverty, to name but a few.
Confounding the problem, according to Zachary Caceres, director of Startup Cities Institute, is an innovation paradox. Physical technologies like cellphones and cameras are continually improved and refined at ever accelerating rates. But social technologies like legal, administrative and governance systems are just not subject to the same entrepreneurial trial and error.
Mr Caceres contends that unlike physical technologies, “social technologies are essentially locked away from competition and innovation.”
This leaves many developing nations in a no-win predicament. Policymakers may recognise the institutional settings that create wealth. All the same, how to start the process of institutional improvement and inject innovation into policymaking, often seems insurmountable especially while simultaneously wrestling with fundamental third world issues.
What options are there then to fast-track the development of struggling countries?
Special economic zones, geographically-demarcated zones that operate under different business and trade laws – the initial models of which emerged in 1980s China – appear to be a practicable solution.
Innovative solutions
The success of special economic zones worldwide has seen the basic concept shift from a predominantly economic and financial policy focus, to a more holistic structure that enables testing social and political policy reform as well.
This relates to a growing trend in social and governance entrepreneurship, parallel to the more traditional technological entrepreneurship. Mr Caceres’ Startup Cities Institute is just one of several emerging enterprises focused on providing innovative solutions to widespread social problems.
The idea is to import into struggling countries the same experimental analysis that would be applied in a scientific lab. Startup Cities Institute seeks to incubate policy changes in small confined areas where competing communities can test the efficacy of the policy change before they are scaled to a city-wide or nationwide level.
Countries suffering overwhelming economic, political and social problems are putting these types of solutions into practice.
These are also where social entrepreneurs like Mr Caceres envisage their solutions being applied: countries plagued by political corruption, administrative instability, economic failures and a lack of governmental transparency. Countries like Honduras, which has been ravaged by the illicit drug trade, weighed down by rampant poverty and has one of the highest per capita homicide rates in the world.
But these countries don’t only fall victim to centrally mandated policy. They also fall victim to highly corrupt governance structures that enforce that policy.
Credible governance
These states require much more than legislative reform. They need extensive policy liberalisation that specifically targets endemic governance and legislative quality problems, establishes private property rights and creates policies much more conducive to facilitating investment and economic growth.
They need reform that creates credible governance systems.
Mark Klugmann, a visiting professor at Guatemala’s Universidad Francisco Marroquin, is a key figure promoting a new idea called LEAP zones.
It’s an acronym for legislative, economic, administrative and political zones, the four fundamental tenets of a successful civil society. The goal of these zones is to “leapfrog” and accelerate both the physical and administrative development of cities and to identify what factors are most effective at attracting investment and creating jobs.
Often, in attempting to revive a struggling country, policymakers have a tendency to focus disproportionately on the economic components of a jurisdiction. Professor Klugmann argues the narrow perspective of simply allowing free trade, creating tax havens and offering tariffs are not sufficient to relieve other endemic problems.
He contends that, instead, a more holistic focus on all four of the critical components is necessary for not only faster but far more stable economic growth. And the idea is already being put to test in Honduras.
Known as ZEDEs under Honduran law (Zonas de empleo y desarrollo económico or Zones for Employment and Economic Development), these politically autonomous, privately run zones could provide real solutions for one of the poorest and most dangerous countries in Central and South America.
Special economic zones
That is not to say it is exempt from critique.
Opponents of ZEDEs are concerned that they are simply neo-colonialism in disguise, while Honduran locals are also sceptical and fear the imminent failure of the zone given a deeply ingrained distrust of the highly corrupt Honduran national government.
But this is precisely the reason why the LEAP zone is necessary.
By allowing liberalised policy and importing tried-and-true governance systems from other countries with well-established reputations for institutional strength, the Honduran ZEDE hopes to target governance and legislative quality problems.
One only needs to look to China under Mao Zedong compared with it with Deng Xiaoping to appreciate the vast benefits greater liberalisation brings.
Under Mao Zedong, an ardent opponent of private enterprise, private property and free markets, the establishment of communes and the centralisation of economic decision-making was immensely damaging for China.
Deng Xiaoping, on the other hand, is credited for prompting the resurgence of the markets and opening China to the rest of the world. A keen advocate for special economic zones, China under Xiaoping’s rule is overwhelming proof that economic liberalisation is a potent cure for alleviating poverty and broadening peoples choices.
Chinese special economic zones have proved effective in extending liberalisation across a wider area.
The concept for many may still seem radical and risky. But a shift in perspective that approaches institutional advancement akin to technological development could, as Mr Caceres argues, open a new frontier for social progress.
At the very least, seeking to innovate the technologies of governance offers a feasible solution when broader scale policy change is too hard.