Patri Friedman’s Plan to Accelerate the Free Cities of the Future
2022-09-26 · Guest: Patri Friedman (Founder of Pronomos Capital) · 52:37
Seasteading and land-based charter cities
Bob Zadek interviews Patri Friedman about the transition from seasteading to land-based charter cities. They explore the business model of Pronomos Capital, the role of “sovereign communities,” and how competitive governance can improve the quality of life for citizens through “foot voting.”
Topics: Charter Cities, Seasteading, Pronomos Capital, Special Economic Zones, Foot Voting, Competitive Governance, ZEDEs, Sovereign Communities
Speakers: Bob Zadek, Patri Friedman
Introduction [00:28]
Bob Zadek: This is Bob Zadek, welcoming you to the country’s longest-running libertarian broadcast, available Sundays at 8:00 AM Pacific. We offer a decade of prior shows on the Bob Zadek podcast. Check out bobzadek.com for resource material, book lists, and other podcasts of interest. We offer in-depth, focused content on social, political, and economic issues, always with the ideal guest. In short, ideas, not attitude. Today’s show embodies that standard. More than a decade ago, Patri Friedman co-founded the Seasteading Institute, and shortly thereafter, he was gracious enough to share his concept of governments competing for citizens on my broadcast. If you wonder whether this concept has legs, look no further than Governors DeSantis and Newsom trying to induce each other’s citizens to move. Competing for citizens. I think Patri Friedman was onto something. In fact, he still is, having recently founded Pronomos Capital, seeking to use the lessons which he’s learned during his stint in Silicon Valley to create a new model for urban development where the city is the product. Patri, welcome to the show.
Patri Friedman: Thanks so much for having me. I’m excited to be back here.
Defining Sovereign Communities [01:00]
Bob Zadek: When we met a decade ago, we talked about the Seasteading Institute. In fact, I was living on a boat at the time, so I was walking the walk as well as talking the talk. Since that time, you have founded Pronomos Capital. What is its business model? It’s unique probably in the world, so please share it with our friends out there.
Patri Friedman: Absolutely. So at Pronomos Capital, we invest in sovereign communities. And I define a sovereign community as a group of people who see some system in their life—it could be currency, transportation, education, healthcare—some part of the set of systems that they live under that they feel is being done poorly, generally by some old, big, legacy, distant provider, and that they want to redo themselves. So a classic example would be Bitcoin, where you have people frustrated with this 20th-century concept of fiat money, which leads to inflation and other ills, and saying, “We’re going to take back sovereignty over money by inventing a non-dilutable currency and using it.” But it’s also the case for villages in Indonesia that have their own hospital and their own schools. They’re saying, like, “We want to do this locally.”
The Evolution of Special Economic Zones [01:58]
Patri Friedman: Of course, charter cities is at the center of what we invest in at Pronomos. These are developments that are different jurisdictions from the surrounding country. That is, they have their own laws, their own courts, their own police. And again, this was a sovereign community of people that’s saying, “Hey, we actually want to be able to write our regulations here locally.” So that’s what we invest in, these sovereign communities. And the business model, if it’s actually a land community, is generally having a share of the land. And for a charter city, the revenue is basically rent and taxes, if they collect taxes. And so if you successfully grow an economy, you’re creating GDP where none existed, and you can capture a slice of it with rents or taxes. And so that’s what we invest in.
Bob Zadek: When we examine the universe of these competitive governmental units competing for customers, aka citizens, there has evolved, in addition to seasteading, which was a concept of floating—I don’t mean to oversimplify it, but floating nation-states outside the geographic boundaries of any particular state governing itself. That’s where we met a decade ago. The concept of independent nation-states—nation maybe too grand, but independent governmental units—has now become in the last decade quite a bit more sophisticated with ZEDEs, you will explain to our friends out there, with nation-states such as Singapore, Dubai, Hong Kong—but Hong Kong maybe is slipping off the list, we may get into that a bit. And then there are the free cities lumped together under something called the Free City Movement, which has had some success and some experimentation, a lot in Central America, Honduras specifically. So give us just the ballpark, the overview of these various concepts. And when you do, Patri, please give us the goal and mechanically how you—you don’t just declare there to be a unit.
Patri Friedman: Oh no. It’s a public-private partnership with the host country.
Bob Zadek: So just explain briefly so our audience, who may not be at all familiar with these concepts, understands how you and I are going to spend this hour together.
Patri Friedman: Yeah, absolutely. And so Honduras is the one program that’s out there fully operating, although they’ve actually changed their mind and shut down the program, and it’s kind of—we’re going to see what happens with it going forward. But we will still use it as an example. So in 2010, 2011, and ‘12, Honduras changed their constitution to create a program called the RED or ZEDE program. These are zones of economic development. And this is the first what I would call a modern version of a special economic zone, where traditional special economic zones, it’s just like there’s some tax breaks or some tariff breaks or you’re allowed to have foreign workers or something, but it’s very, very shallow. The jurisdiction is not very different.
And what the ZEDEs did was they looked to Dubai International Financial Centre, where Dubai viewed their laws and institutions as like a startup would view the tech stack. Like, “This is what we’re offering, and we want to be a financial center for the Middle East. We don’t have good regulations, we don’t have good laws for that.” So they said, “Let’s be deliberate about creating a jurisdiction for our purpose.” They looked around the world, they said, “London. We think they have the best financial regulations.” So they copied British regulations in English and applied them to this zone, Dubai International Financial Centre. But not just applying to the zone, but any corporation that incorporates there is under this law anywhere in the United Arab Emirates.
And so what Honduras did was they made a somewhat similar program where a private developer can apply to the regulator, the regulating body, and say, “Here’s the investment we have behind us, here’s the kind of industry we’re going to bring, the jobs we’re going to create for Hondurans.” Part of the regulation is that jobs have to be at least 90% for Hondurans. That’s part of the goal of the country’s economic development. And then what is the legal system going to be? What are the regulations? In the ZEDE program—in all of these programs—the project is under country sovereignty, and that means it follows that country’s constitution and their international treaties. In the ZEDE program, the zones follow the Honduran criminal law, but they can create their own commercial law with approval of the regulator. And there are projects around the world we’re working with where governments are considering a similar level of autonomy. And there are also some projects we’re working with where they’re actually willing to let the zone do criminal laws as well as commercial. So the zone can create a full legal system, again, under the constitution and under the treaties of that country. So that’s what these look like. And it’s this close partnership between the developer and the country to make a zone to bring foreign investment because, for example, there are a lot of companies that wouldn’t be comfortable opening a factory within the Honduran regulatory system, but they’re very comfortable with Delaware corporate law or other regulations that are combined to make the commercial law of a zone. It brings in foreign investment, it brings in hospitals and factories and schools and people just being willing to invest, which creates jobs for the locals. So it’s really a partnership between these developers, who are often some mix of foreign and local, and say, global nomads who want to go live under this new legal system and bring expertise starting businesses and bring, you know, capital, like they spend money and that helps the local economy. And people from the region and from the country are always going to be the bulk of the people who live there, I think.
Domestic Precedents: Opportunity Zones and Disney [05:58]
Bob Zadek: I want to add a little bit of context to this, if I may. First of all, lest our listeners think this is dramatic and radical and extreme, I’ll point out that the United States has had zones within it for quite some time. And in Congress about three or four years ago—in fact, one of the tax bills, I don’t recall which administration—they created, I think they were called development…
Patri Friedman: The Opportunity Zones.
Bob Zadek: Thank you, Patri. There were Opportunity Zones. So this is quite mainstream under the—under governance where in effect our country acknowledged that in certain respects the legal economic system wasn’t working. And so they said, “We will carve out, we’ll draw on a map a mark, and we’ll create a district. And within the corners of this governmental…”
Patri Friedman: Although the Opportunity Zones, those are—it’s a pure tax thing. Of course, it’s only a tax difference for development in those areas. But there are also free trade zones in the US. The level of kind of difference in the special jurisdiction is much more like a special economic zone. But you’re right. I mean, there’s thousands, literally thousands of special economic zones around the world, including in the US. And this is just the next evolution of the special economic zone. SEZ 2.0 is to these jurisdictions that get to bring in, like, the best commercial law from around the world.
Bob Zadek: Now, one other side note. About a month ago, I did a show when DeSantis was picking a fight with Disney. I said, “What a perfect time to do a show on Disney,” because Disney had, in a manner of speaking, this same relationship where the state of Florida created a district, a development district where Disney had total control, total autonomy. It designed the building code, it provided the utilities, the services. So it created a zone that said, “This part of Disney is in many respects not in Florida.” They just ruled it, it’s not in Florida. It’s floating out there in the ether. So the concept of a functioning district within a dysfunctional greater geographic area is not new. So Patri, if you thought and if you presented yourself as a radical revolutionary, the concept is quite mainstream, although…
Patri Friedman: I did in the old days. 15 years ago. Right? But you’re right. I’ve grown up and the movement has grown up. And it used to be that the movement was kind of in opposition to states, but the stage they’re at right now, it’s all about working with friendly states and having a partnership where essentially they bring their sovereignty and then we bring the ability to create economic growth, to create jobs, and we work together.
From Opposition to Partnership [08:35]
Patri Friedman: And now the long-term goal, as you alluded to earlier, I want to make venture-backed for-profit startup city-states. That is my long-term mission. I want to start fully sovereign private city-states. That’s what we’re on the road to. But even that’s going to be done, I’m sure, in partnership with countries, with small countries, again, kind of sharing their sovereignty. You know, there’s a progression of the special jurisdiction and how many of the laws are its versus how many of the laws are from the container, what the relationship is. But I’ve been working on this for over 20 years now, and I think that we’re less than 10 years away from having an effectively sovereign startup city-state, and maybe from having an actually recognized one. Let’s say less than 15.
The Pronomos Business Model [09:22]
Bob Zadek: And what is in the business model of Pronomos? Do you provide a kit? If somebody has enough money and enough drive to carry through on the project and they love the concept—but it’s one thing to love the concept as I do, it’s another thing to get it done. Do you provide like a starter kit and then the platinum package? And then what exactly—tell us the business model and in case there are a lot of people out there who are sitting around impatient to form their own cities but they don’t quite know how to do it, who will end up sort of posting all your contact information.
Patri Friedman: Come my way, come my way.
Bob Zadek: So tell us who are you when you are promoting your concept? Who is your target audience? And who do you have to make the sale to first? And what happens after somebody says, “Okay, Patri, I’m in. What do I do next?” Tell us how this all works.
Patri Friedman: Yeah, great set of questions. So I’ll talk about the kit, how we work with founders, and who we have to make the sale to. So in terms of the kit, there isn’t one. There probably should be. So like a lot of people, my partners and I had a very difficult pandemic—like, very tough time personally. I mean, there was health issues and divorces and all kinds of stuff. And so we weren’t able to do the extra work to kind of like put that kit together. We worked with our companies, we found companies. But now that it’s kind of post-pandemic and we’re growing our funds and we’re hiring more staff, we’re going to be much more hands-on. And so it really depends on the founders and how much help they need. There are people that we work with and invest in where we don’t have to do very much besides writing that check, maybe introducing them to investors for their future, like larger rounds. But we also know that like we have more experience in this space than anyone. We’re the only ones who are working really across all the different companies. And so we’re going to be much more hands-on in the future. In fact, we have a couple projects right now, one in Asia, one in Africa, that we’re looking to really dig into ourselves as a fund and put together the founding team and mentor and work closely with the people. But it’s really a range depending what people need. And while we don’t have the kit, we do have the experience and I think once we’ve done this three or four or five more times, we kind of will have the kit.
In terms of who our audience is when we’re talking about this stuff, some of the major stakeholders are governments, founders, and investors. Those are the big ones that we need to make a project happen. So government: these projects are done in a close partnership with a government. It’s a public-private partnership for mutual benefit. And so that’s a very important audience. And we look for those few kind of innovative governments that view themselves as startups, generally they’re small countries and, you know, just kind of want to take advantage of the fact that sometimes smaller is better because you can do bold things like creating charter cities. And then on the founder side, that’s actually one of our biggest shortages is like proven entrepreneurs who know how to start companies and are ready to just roll up their sleeves and dig in and start a city. We’re very much looking for those people. And we need to make the sale for them. I think a message that I haven’t really done well at getting out is that there’s a lot of people who are excited about the space, they think sovereign communities and charter cities are amazing, but they think of it as this thing in the future that’s going to happen soon. And it’s actually not. Like, you can roll up your sleeves and start a company right now. We have opportunities that are, you know, kind of like ready for founders. And then the third group is investors. Like, it doesn’t take a lot of money at the beginning. We write checks right now ranging from 100,000 to a million at the early stage before you’re buying land and doing construction. But as these projects materialize, they need tens of millions of dollars to do those initial build-outs. You might be able to get away with millions in a developing country, but you’re going to need tens of millions pretty soon. So that—governments, founders, and investors, I would say, are our main audience.
Land and Sovereignty [13:31]
Bob Zadek: A couple of questions regarding the countries, because you have to start with obviously a willing country. You can’t just go into a country and plant a flag. So you have to have a willing country. Is the country asked to seed land? What is the country’s relationship first of all to the land in which the city is? Because I presume it is to some degree, when you talk about investors, the core asset the investors are investing in is they’re buying land.
Patri Friedman: It’s a big part of it. And infrastructure and buildings. Yeah. And then also kind of the operating company and the fact that this company has made a relationship and agreement with this government and gotten permission. But the land is a big part of it. So it really depends on the country. So there are some countries that don’t sell land, where the land is owned by the government and it can be leased. So that’s one thing. So sometimes it’s owned, sometimes it’s going to be leased. And then the other thing is in some projects like in Honduras, the land is being bought on the public markets, just bought privately like a normal land transaction. But there are other places where the government, because the government owns so much land in the country and wants to promote the project, where the government contributes the land as part of like their side of the contribution. So it can work any of those different ways.
For-Profit City-States [15:22]
Bob Zadek: Now, our show is a libertarian or libertarian-ish show. Is this core project—is the goal to give investors another way to make money? Is that one of the goals, but there are many? Because obviously you have a long history, you have a long clear political history, you have your views—I share them—in how the world ought to be organized, what our relationship with our government ought to be. So is part of the ideal, is part of the goal besides making money…
Patri Friedman: It is. Okay, part of the goal is—so all of my investors are—this idea is kind of too crazy to invest in to make money. All of my investors are in it because they want the world to change in this direction. They think that if people can start new jurisdictions with different laws, that will just be better for humanity. We’ll be able to like re-architect our legal systems and spread best practices and create zones of prosperity and that that’ll be a good thing. They all want to see that impact on the world, that mission to rezone land with better laws and institutions to serve humanity. That said, like the amount—to build a city, right? To build Singapore, you’re talking at least tens of billions, maybe hundreds of billions of dollars to build Singapore. And so if these projects are going to succeed, they’re going to need a lot of capital. And the only way to get that capital is if they’re profitable. And so all of our investors are in it for the mission, but in order for the mission to succeed, we have to make money and the projects have to make money so that we can go from this—our first fund is 13 million, you know, our second fund, which is also anchored by Peter Thiel and Balaji Srinivasan, is going to be 100 million. And so we’re kind of growing bigger and bigger funds as these projects need more and more capital. But the only way to keep growing that is for the projects to make money. But that’s nobody’s primary motive. Nobody. I know nobody would invest in us just for that purpose. It’s too crazy.
Governance and the Citizen-Customer [17:51]
Bob Zadek: Now, that was a lead-up to what I felt to be the more important, perhaps interesting question, at least to me. Who determines the political system? And to what extent—because you’re going to need citizens, it’s not going to be just things, they’re going to be people, obviously. And we have the owners of the project, the investors, whatever you want to call them. Is it a company town where the investors get to rule the roost? Are you offering democracy, small d, like New England town halls? And what—how does the system change? Tell me about the government versus the citizens. Who gets to make the rules and how does that all work? Or is there more than one model?
Patri Friedman: Great question. Yeah, so there is absolutely more than one model. I mean, people often in my career kind of ask me, “Oh, so what political system are you creating?” And it’s like, no, no, no. What this is about is making a world where lots of different people with ideas for different legal and political systems can try them. So it’s very much about that and it’s going to be different in different projects. When I think about some of our current projects, for example, in Honduras Prospera, it is sort of this company town model where the company is the developer, they’re creating the regulations as part of the product. The package that they’re offering to businesses is, “Here’s the commercial laws, and we try to make commercial laws that people want because that’s our customers.” And Prospera’s also like very willing to work with businesses locating there that need customized regulations. Maybe they’re doing something new where there aren’t good regulations yet. And so there is a collaboration there. Now, there are aspects of the ZEDE law—I’m not deeply familiar with them—but that kind of add democratic elements to the zone over time. And so that’s that program. But there’s other projects that are like small consensus-based groups, for example. And I think that there’s a lot of different ways to do it. You know, we’re happy to invest in any model that seems like it’s going to serve its citizens and create economic activity and grow and work out. But the standard model really is the company in partnership with the country. It’s the two of them working together to determine the regulations, generally with the company doing all the hard work of creating the regulatory system because that’s their part of the job, and then the country reviewing it, making sure that it fits their constitution, that it makes sense, that there’s nothing that is against their goals for the country there, and approving it.
I think of it a little bit like people have this idea that like government should always be participatory and I personally think that that’s actually kind of silly. Like, if Steve Jobs had asked me like how to design the iPhone, we’d have a way worse iPhone, right? I’m the customer. My expertise is in like what I want and in choosing a product, not in designing it, right? Not even in like in picking the people who design it, right? I look at the end product and I just say, “Oh, I want that one. I want that car. I want that phone. I want that house.” I look at it and evaluate it. That’s my role as a consumer. And I really think that that’s most—for me personally, I think that’s what citizens should be. I’m not the boss of these projects at all. The investors in a Silicon Valley type startup, you know, might own a few percent. Maybe an investor might own 10% or 15% if they have a huge share. But it’s mainly run by the founders. And so I don’t get to dictate this. But personally, I view myself as a consumer of government services that I have preferences and it’s not my job to be appointing the people, it’s not my job to be telling them how to run it. So I happen to think that an effective city, there’ll be a lot of market research, there’ll be a lot of polling and understanding the citizens, and then the company will try to serve them and provide what they need. Now, you and I are libertarians, that means that we believe in voluntary contracts between individuals. And so one aspect of a system that offers a lot of freedom and voluntary contracts is that people can then add on to it and kind of build whatever they want. So if there’s a neighborhood that wants to have—I don’t know, maybe they want to have no cars in the neighborhood. Maybe they want to have like no plastic used in relation to food because they think that’s unhealthy. Or no high fructose corn syrup. And they have a set of things that they want for the neighborhood. They can then just create that as a contract that people sign. If you come into this neighborhood, you sign it, like an HOA. And if you sell, you have to like make the next person sign it. And people can create and layer on whatever laws they want in the type of society that you and I would like to live in. So there is absolutely that flexibility.
Foot Voting and Functional Government [21:32]
Bob Zadek: How would a citizen—or what would induce a citizen, do you think? What’s your market research, if you will? What would you have to offer to catch the attention of a citizen, somebody living in the Midwest, living in Idaho, to move? Because every citizen you have is going to be moving from somewhere else, obviously, just like foot voting in the United States, from generally from the blue states to the red states or from the north to the south. So that’s going on right now, foot voting. Lots and lots and lots of it. You need foot voting. That’s what you want. You want to win the election of feet.
Patri Friedman: No, we don’t need to win the election. We just need a decent tiny minority position. Because if you think about the size that these projects are, we’re talking about needing tens and then hundreds and then thousands of people. Like, we’re not even at the tens of thousands yet. So we don’t even need to win an election for foot voting. What we do need is to win some small number of people, ideally people who have things that they can contribute, whether it’s capital, bringing businesses, starting businesses. And we need to appeal to sort of this tiny—you know, if we got one in a million Americans, that’d be 350 people. Like, that’s plenty for where the movement is at right now. And then you need to appeal to those one in a million and then as you scale up, you need to appeal to one in 100,000. And it’s in terms of what they’re offering, you know, look, this is an opportunity to go from talking about freedom, from talking about different kinds of societies, to actually living there. And there’s going to be some number of people who often are already location independent—and this has been a huge boom from COVID, so many more people becoming location independent, which makes it that much easier to go move to one of these places—and just kind of their social life and their family ties is such that moving makes sense to them and they’re interested in living under this better regulatory system, living with other people who also want to do it. One of our companies, Praxis, they’ve formed a society of ambitious and optimistic young people. So entrepreneurs, people who have a positive vision of the world, a positive vision of how technology can help humanity. People who are very much not in the kind of doom and gloom and environmental pessimism and anti-capitalism and all that crap. And they’ve got thousands and thousands of these young people who are all in a society where the goal is to move to and create a city together. And so that’s an example of just how much interest there is. And that’s plenty. A thousand ambitious young entrepreneurs, like, that’s going to have an incredible positive effect on the economy of a city. So we only need to kind of appeal to that minority of people who are like really well-suited to this right now. And then just I think a lot of the population is going to be local and should be local because that’s the contribution of the city is going to be making jobs and increasing prosperity, increasing standard of living for the locals. That’s what you’re giving, not always, there’s other things a country can want, but by default, that’s what you’re giving kind of in return for getting to create this. And so most of the citizens, I think, should always be locals.
Lessons from Intentional Communities [24:38]
Bob Zadek: In the history of our country, which I’ll use as a for the moment frame of reference, we’ve had experimentation with utopian societies—I think Utica, New York was an early—somewhere in upstate New York was an early attempt at utopian cities. We’ve had communes in the more recent past. Those are in a manner of speaking, in a very rough sense, but more than zero, experiments of people who wanted to check out of more conventional political system or society and have more control. Are there lessons to be learned from that? Is that a horrible example of what you’re trying to do? What are the similarities, if any, and what are the differences? And I’m sure they’re profound.
Patri Friedman: Absolutely. I mean, it’s very relevant. You know, those are experiments where people are saying we want to live in a different way. The vast majority of them failed. The vast, vast majority. But there are today successful communities that have been around for 50 years, 100 years. Not very many of them. I studied these things 20 years ago, so I’m pretty out of date, but I do think there’s a lot to be learned. The most fundamental thing is essentially realism versus idealism, where you can realistically change how you live together, right? If you kind of humbly understand the reasons why things work the way they do, the reasons why we do the standard thing, and then you kind of intelligently and practically thinking about how will I actually want to live, not in my imagination, but in reality, you can find different ways to live. I mean, there’s very successful intentional communities all around the US, co-housing communities, in Scandinavia as well, that are built in a different way for more community, more community ties and facilities. And there’s definitely like a steady movement of people wanting to live together, to co-live and to co-work. There is something real there and you can do it. At the same time, the vast majority of the time, if you look at the goals of these societies, it’s something very like kind of radical that they’re trying to do where they’re not really thinking about the practicalities, they’re not thinking about on the ground. You know, there’s a great saying from one of the ’60s communes after it fell apart, it was, “We were together on the level of peace and love, and we weren’t together on who was going to do the dishes.” And I think that kind of shows it. Like, you have to design communities where you’re together on the question of who’s going to do the dishes. But there’s also huge differences. Like you said, these communities are not getting to change the laws and regulation. They’re at a much smaller scale. There’s really important differences, but I absolutely think it’s one of the things that we draw on and learn from.
Bob Zadek: The Amish community occurred to me, not before, not as I prepared for the show, but as you were speaking. And I said to myself, “Wow, that seems to check a lot of the boxes.” They prosper, they survive, they live without outside control. They get to organize their educational system and to some degree—I don’t know that much about it—the political system. Maybe the same can be said with these growing Orthodox Jewish communities, the Hasidim and others, in both Brooklyn and Monsey, New York and upstate New York. So I think we have—are they ideals to look towards to learn from or is there not much relevant? Just draw the comparison, and I pick that because they work. They work perfectly for a very long time without harming the host and with totally supporting those within the community.
Patri Friedman: That’s right. No, I think that those are great examples and they’re examples of, you know, kind of the rare ones that are succeeding and growing. And in the case of the Amish, you know, contrary to what I said about how it’s unlikely for these to work if they have a really radical philosophy at their basis, the Amish have this radical anti-technology philosophy and it actually works. So I think that that’s—it’s a really good example. And as you said, my dad studies the law and economics and his latest book, Legal Systems Very Different from Ours, covers things like the Amish, which are what he calls an embedded legal system, where you have a community that’s so strong that they can operate to some degree their own laws within some greater system. Although I’m sure that in the case of the Amish, you know, or anyone in the US, that the fact that you can as a backup go to US criminal court, you know, I’m sure that that matters too. But, you know, I’m really interested in, you know, personally I’m someone who sees a lot of like benefits and upside to technology and a lot of harm. And I would personally love to live in something that was, I don’t know, like that was open to being as radical as the Amish, but that examined technologies and kept some and discarded others, right? And had maybe really strong strict rules where a lot of things that happen in normal society aren’t allowed to happen there around technology. I mean, maybe everybody’s phones like shut off at sunset? Right? I don’t know what it is. But I think that idea of customizing a lifestyle that’s really different from the default modern world is a beautiful idea. And theirs doesn’t work for me, but as long as people are allowed to leave, right? As long as they have the choice to leave, then I’m in favor of it. And I think that for the people who choose to stay, it’s because it’s a better life for them. And I think that’s wonderful. And the same for these startup societies. What matters to me is that people opt in, they choose it, that they’re able to leave, and then you kind of know that whatever the society, whether it seems like something that makes sense to you or works for you, that they’re in free association with it and you can just let people do different things and have diversity. So yeah, I think it’s a great example.
The Future of Sovereign Competition [28:54]
Bob Zadek: One of your—let’s imagine one of your investment is up and running. It’s a city, it’s somewhere. It might be in the US, not so likely—probably a lot more resistance. Third-world countries or second-world countries.
Patri Friedman: Probably in the Global South, yeah.
Bob Zadek: How would it feel—let’s sort of drill down to the customer/citizen level. Under what circumstances would that citizen say, “I made the right choice. This offers me something which my other lifestyle did not.” Is it a matter of prosperity? What is it that will feel different enough to induce a citizen to make a pretty substantial change in one’s life?
Patri Friedman: Yeah, that’s a great question. I traveled to Dubai and Singapore this year. And I think for people who haven’t traveled to places where the government actually works, I think it can be a pretty eye-opening experience. Just having everything function very smoothly, what I would call operational excellence in a government. It’s clean, it’s safe. I live up in the mountains here in the San Francisco Bay Area, but, you know, in San Francisco there’s awful crime, businesses just getting smashed in, needles and human waste on the sidewalk. There are places there where it’s pretty grim. And so visiting a country that just works, it’s a delight. You know, the airport experience is really different. So I think that’s part of it.
For me, I would go back to my motivation for starting all of this stuff about 21, 22 years ago was I graduated from college and I started like looking at the society around me and thinking, “Wow, this society does not fit my values at all.” I mean, I’m a libertarian. I don’t want us to be going and engaging in these wars. I don’t like a lot of the social restrictions and social conservatism. I don’t like the profligate waste of money. And I didn’t like—it doesn’t feel good to be part of a country that is such different values and that’s never going to be my values because my values are a minority and it’s a democracy. And there’s just no way in the kind of left versus right, red-blue battle, like whoever wins, I lose. And I don’t like that feeling. And I think knowing that you’re in a place that is built according to your values, whatever they are—for the Amish, it’s very different values than it would be for a techno-libertarian like me—but knowing that you’re in a place that’s run according to your values, where the use of your tax dollars is on things that you value, like the infrastructure that runs the city, and not on things that are negative to you, like going and fighting with other people or locking people up because of what plants they eat and garbage like that. Just knowing that you’re part of something that is your tribe, that is your value, and that functions well and smoothly, to me that’s very appealing. And I very much look forward to, you know, sometime in the next probably five, six years, when I can move to one of these.
Closing Remarks [31:11]
Bob Zadek: You mentioned earlier in the show and I flagged it to come back to it. In discussing Honduras, you mentioned that Prospera made what I consider to be a concession—maybe it wasn’t a great concession—where Prospera in its free city within Honduras, it agreed to adopt or become subject to the Honduran criminal law system.
Patri Friedman: Well, there’s no question of agreeing or not agreeing. That’s when Honduras created the program by changing their constitution, that was the terms of it. And they’re the sovereign country there, they get to set the rules of the program, and so it’s not really up for debate. But in other countries that are creating these programs, there’s the opportunity to change that.
Bob Zadek: So that’s a negotiation. But I guess it would be closer to your ideal—ideal perhaps unattainable for the minute—but probably in your ideal situation, the free city—I’m using that phrase because we both know what it means—the free city would design its own criminal law system if it could negotiate that with the host country, because criminal law is an extension of morality to some degree. And when you mentioned we’re libertarians, we want to sort of create the relationship between our government and ourselves, an important part of that relationship is a criminal law system. What you go to jail if you do, or what you must do or you go to jail. So therefore, living the way you want would mean to some degree ideally control over the criminal justice system. But I guess that becomes a negotiation, you don’t always get everything you want, at least not in the beginning. And I suspect that if the host country ends up enjoying substantial enough economic benefits and therefore it’s getting a flow of money, it might be willing to make the concession and allow the free city to draft its own criminal law system so long as it’s not terribly offensive to the host.
Patri Friedman: Yeah, absolutely. I mean, I think it’s partly a process of gaining trust, right? This is something where, you know, we have to actually build these sovereign communities and have them grow and have them, you know, be places that people visit, that government officials from around the world visit. They see how it’s running, they see that it’s a better way of life, that it’s not something awful or creepy, it’s not exploiting people, it’s providing benefit. And then as that trust grows, I think these communities can move along the kind of sovereignty axis, with the goal, as I said, my goal is fully sovereign city-states. But there’s a lot of stages to get there. And I think that where we’re at right now with this getting to set commercial law and soon maybe criminal law in the next few years, I think that that’s really good. That’s like a really solid degree of local autonomy that’s really meaningful. And then over time, I think we’ll get to where some of these jurisdictions are getting to set all of the laws under a country’s constitution and treaties. And then at some point it makes sense for them maybe creating a new one, maybe breaking off, maybe back to the seasteading, maybe this is done in a floating city so that you’re not taking any land. But whatever it is, gets to sort of a semi-sovereign status where it’s still under the country’s sovereignty, but it has its own independent treaties, for example, or its own independent visa control or other things that are generally done at the top level start to shift over. And then eventually when it’s big enough, it can seek full recognition. And there’s people out there who think that you can like hack sovereignty by getting some kind of like recognition and then growing under that. I personally believe that’s backwards. I think you want to be at like the 20th percentile of—meaning that like of every five countries, four of them have more people and one of them has less. Four of them have more total GDP and one of them has less. Four of them have the bigger military and one of them has less. That’s the kind of point where you can say, “Hey, like we’re well above the floor of countries, like you should recognize us.” Or maybe we just always plug in to the sovereignty system through other countries. Like, that’s possible too. We’ll kind of see. It’s going to be fun.
Bob Zadek: What since you started the project, what have you learned? What specifically, what has been the biggest obstacles you’ve had to overcome and share with us your success? And what has helped you make sales—I don’t mean to minimize it, but to be successful in a project? What have you learned about the friction and the easy part of this very revolutionary, but my goodness, very hopeful—I’m rooting for you—very hopeful goal that you have?
Patri Friedman: Yeah, I mean, it’s going really well. I gotta say, it’s felt like I was pushing a boulder uphill for 18, 19 years and now we’re actually on the downslope. And it’s a gentle downslope, but things are just picking up momentum on their own, which is wonderful. I mean, the hardest thing has just been getting acceptance of this kind of radical idea and getting people to take it seriously, winning hearts and minds. And I think the reason that we’ve been able to is basically that I saw the future in terms of the way that the world was going to change, the kind of thinking that was going to show to be successful, the kind of people and companies that were going to get capital. And it’s just because I understood technology and incentives and the ways that the 21st century was going to be different than the 20th century. I kind of grew up—my family is, you know, in addition to the econ side, my dad’s very much a futurist. He was in the early like cypherpunks group that gave rise to Bitcoin, but like that was talking about these things in the ’90s. So I was very embedded in this like futurist Silicon Valley world and I kind of saw the way that things were going to go. And it’s not I think because of my work in going out and convincing more and more people and people who had more and more resources, more and more ability to do things over the course of this 20 years, you know, just me kind of just diligently putting in the time talking to whoever will listen, like addressing their concerns, coming up with good metaphors to spread the ideas, just getting the word out there. But it’s not something I did along the way that made it succeed. It’s that I happened to be right about the direction of the world. And now in 2022, in this post-COVID world, there’s all these like small states that are thinking about like innovative ways to win investment and it’s just the way the people are thinking. And so it’s no longer like, “Oh my gosh, how am I ever going to convince any country to do it?” It’s more like, “Oh, which of these, you know, 10 countries should I focus on right now?”
Bob Zadek: Another comment you made that I flagged that I was waiting for the opportune moment and that is now. You talked about persuading a country to give up land. To me, I wondered about that because a country is not giving up land. It’s finding the best use for the land. Owning land per se is just an expense. You gotta take care of it, you gotta protect it. But it’s unproductive. So you’re not asking for them to give you land any more than you’re saying to somebody, “You have this abandoned factory, how about selling it to me, I’ll pay you rent or I’ll pay you a fee to use it and I’m going to make money on it in which you will share.” So you’re not really asking for land. You’re asking to allow in a way to use their land for a better purpose. Just a comment. That wasn’t really a question. But my last question is if I were talking to let’s say a fund manager, I might be curious what do you have more of? Money to invest and you can’t find a home, or tons of investments and not enough money? So my last question to you is right now at this point in your development, do you have projects that you need to get the money for and you have plenty of demand for the projects but not enough money? Or do you have sufficient money and now you’re just looking for the best place to employ it? Just give us a sense of where you are in your development and then when we close at the same time, tell our friends out there how they can keep an eye on you as you grow the project.
Patri Friedman: Absolutely. Yeah, we—so we’re fine on money for this kind of early-stage investment and getting projects started. We do need partnerships with capital partners who can provide investments in the, you know, 5 to 100 million dollar size. The projects are going to need that in the near future. But—and we have plenty of countries that are interested in working with us and potential sites. The biggest shortage really is the founders, is, you know, A+ quality kind of entrepreneurs, the kind of people who would, you know, get into Y Combinator or get funded by Andreessen Horowitz, who have some experience under their belt and starting a new city is what they want to do. That’s really the big shortage. Beyond that, like investors are always welcome, but that’s not the shortage at all.
Bob Zadek: So you need rich out-of-work mayors who are looking for something to be a mayor over. That’s what you need. A mayor who’s like, “I want to be a mayor/CEO. I want like a lot more control over it.” That sounds amazing. And yeah, you can follow us, go to our website pronomos.vc, that’s P-R-O-N-O-M-O-S dot V-C. That’s got our social channels. Twitter is the main one we use, it’s @PronomosVC. And we’re just spinning up our Instagram. There’s going to be a podcast soon. We’ll be doing a lot more videos and a lot more content, but it’s Twitter for now.
Bob Zadek: Thank you so much. We were speaking with Patri Friedman. Patri is the founder of Pronomos Capital, which is the investment vehicle to grow a thousand new city, state, nation, zones—call it what you will, but you have control over your economic and political life and you don’t have to be subjected to the old somewhat out-of-date legacy model of governance. And the beauty of it is you don’t like it, you try another one till you find the one you like. Patri, in other words, you’re selling freedom and freedom of choice, especially in who governs you. Thank you so much, Patri, for giving us an hour of your very, very valuable time. We will follow your work as I have all along from seasteading on and keep it up and I’ll keep my bags packed, Patri. Thank you so much.
Patri Friedman: All right. Thank you so much, Bob. It’s a delight to be on your show again as always.