The Sequencing Problem

A few years ago, when I was, much against my will, becoming the public face of ZEDEs on TV, my wife and I went for coffee at a French restaurant we have frequented since it first opened as a humble operation in a Tegucigalpa garage. The restaurant has since grown into something considerably more established, but we are always treated nicely, as something more than just customers, as we have witnessed its owner — a French chef who married Honduran and decided to stay for the ride that is managing a small business in Honduras.

On this particular day he sat down at our table. "Hey ZEDE man!" — he greeted, then sat down and started asking me questions. My children, though older, went to the same French school as his, so by then we had become quite familiar with French culture and thought process.

He proceeded to ask many questions and go about the concepts in the circular way of analysing a problem that the French do until reaching their own conclusion. He listened carefully. He asked good questions. He was genuinely intrigued by the concept — a special jurisdiction with its own governance, designed to attract investment and demonstrate that good institutions were possible in Honduras. But when he felt he had obtained his answers, he leaned back and said something I have not forgotten.

"The problem," he said bluntly as Frenchmen do when identifying inconvenient truths, "is that you always start by building the head before you build the feet."

I was reminded of that conversation while researching my upcoming book, The Fortress Builders, and reading about the Federal Republic of Central America — the short-lived federation that emerged from the ruins of Spanish colonial rule in 1823 and collapsed, exhausted and ungoverned, in 1841. Eighteen years. A parliament, a supreme court, a federal army, a constitution modelled on the United States. All the institutional architecture of a modern republic, assembled before there was anything resembling the social, economic, or political foundation to sustain it. The head, built before the feet.

Ever since, Central Americans have been trying to revive what was lost. The Central American Integration System. The Central American Parliament. The Central American Court of Justice. The Central American Bank for Economic Integration — always the bureaucracy before there's a need for it. Decades of summits, declarations, and endless negotiations of framework agreements that often solve non-existent problems. Flags flying together at regional headquarters in cities that cannot agree on a common tariff or a unified commercial or customs policy.

Compare this to Europe.

In 1951, six nations signed the Treaty of Paris and created the European Coal and Steel Community. Not a parliament. Not a court. Not a constitution. A trading arrangement for two commodities — coal and steel — because France and Germany needed to sell these things to one another and neither trusted the other enough to do it without a framework. The bureaucracy came later, as the need for it became real. The court came when there were disputes worth adjudicating. The parliament came when there was something worth debating. Each institution arrived because a genuine function demanded it, not because a founding document had reserved space for it.

The result is the most ambitious supranational project in human history — imperfect, ungainly, frequently maddening, but real. Real enough that when Britain decided to leave it, the departure took four years of agonising negotiation and left scars that have not healed.

Central American integration, by contrast, has produced institutions that command salaries and occupy buildings and hold meetings — but whose absence would be difficult to distinguish from their presence. Zombie institutions, kept alive not by their function but by their payroll.

The difference is not political will, or cultural disposition, or the size of the economies involved. The difference is sequencing. Europe built the feet first. Central America built the head.

This is not an obscure historical lesson. It is the central challenge of institutional design in the developing world, and it recurs with a consistency that suggests something more than coincidence is at work.

When I was involved in designing the ZEDE framework in Honduras, we were conscious of this trap. The basic architecture was minimal by design. A government supervisory body, a technical secretariat, a set of constitutional anchors. Internal governance was left to the zones themselves, to develop organically within legally defined limits. The intention was to let function precede form: build what the market actually needs, not what the framework document reserves space for.

Whether that design philosophy was executed perfectly is a question the full story addresses — and that story is told at greater length in The Fortress Builders, you be the judge once the book is published. What I can say here is that the principle was deliberate. We had read enough history to know what happens when you build the head before the feet.

The French restaurateur who sat at our table that evening probably didn't know about the Federal Republic of Central America. He had not read Douglass North on institutional path dependence or Daron Acemoglu on extractive institutions. He had watched businesses succeed and fail from a kitchen and a dining room, and he had noticed something that the literature takes considerably longer to establish.

Institutions that emerge from genuine need tend to survive. Institutions that precede their need tend to become the need — consuming the resources and attention that might otherwise have gone toward building the foundation they were supposed to crown.

The EU understood this, perhaps by accident. Central American integration has been learning it, painfully, for two centuries.

The head, it turns out, is very difficult to attach once you have built it in the wrong order.