It’s been over a decade since I first discussed the “seasteading” vision for startup cities at sea with Patri Friedman. The concept has grown up, along with its founder, who is now funding startup city ventures through his new company Pronomos Capital.
In this episode, Patri and I discuss the latest happenings, and the underlying philosophy of governance that led him to his current work investing in sovereign communities.
Mentioned in this episode:
Prospera - Charter city project in Honduras
Legal Systems Very Different from Ours, by David Friedman
Transcript
Bob Zadek: Hello, everyone. This is Bob Zadek welcoming you to the country's longest-running libertarian broadcast, available Sundays at 8 AM Pacific and streamed on through the web. We're available on selected AM stations. We offer a decade of prior shows on The Bob Zadek podcast and check out bobzadek.com for resource material, book summaries, and other podcasts of interest. We offer in-depth, focused, content on social, political, and economic issues, always with the ideal guest. Accessible and entertaining in short ideas, not attitude. Today's show embodies that standard.
More than a decade ago, Patri Friedman cofounded 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 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.
Bob Zadek: Now, 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.
Investing in Sovereign Communities
Patri Friedman: Absolutely. At Pronomos Capital, we invest in sovereign communities. 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 they want to redo themselves. 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 – 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 that are saying, "We want to do this locally." 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 is a sovereign community of people that are 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 has actually a land community generally having a share of the land. And for a charter city, the revenue is basically rents 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 that's the profit model. So, that's where we are investing.
“For a charter city, the revenue is basically rents and taxes, if they collect taxes.”
Bob Zadek: When we examine the universe of these competitive governmental units competing for customers – AKA citizens – other concepts in addition to Seasteading have evolved. Seasteading was a concept of floating nation-states outside the geographic boundaries of any particular state governing themselves. That's where we met a decade ago. The concept of independent nation states may be too grand, but independent governmental units have now in the last decade become quite a bit more sophisticated with nation states such as Singapore, Dubai, Hong Kong (although Hong Kong maybe is slipping off the list).
Then, there is something called the Free City Movement, which has had some success and some experimentation in Central America, Honduras specifically. So, give us just the overview of these various concepts and give us the goal and mechanically, how you do it. You don't just declare there to be a unit.
Patri Friedman: Oh, no. It’s a public-private partnership with the host country.
Honduras is the one program that's out there fully operating, although they've actually changed their mind and shut down the program. We're going to see what happens with it going forward, but we will still use it as an example. In 2010, 2011, and 2012, Honduras changed its constitution to create a program called the REDE or ZEDE Program. These are zones of economic development. And this what I would call, a modern version of a Special Economic Zone (SEZ), where traditional special economic zones might have some tax breaks, or some tariff breaks, or you're allowed to have foreign workers – it's very, very shallow. The jurisdiction is not very different.
ZEDEs looked to the Dubai International Financial Center, where Dubai viewed their laws and institutions as 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.”
They said, "Let's be deliberate about creating a jurisdiction for our purposes." They looked around the world, they said, "London – we think they have the best financial regulations." They copied British regulations in English and applied them to this zone, the Dubai International Financial Center – not just applying it to the zone, but any corporation that incorporates there is under this law anywhere in the United Arab Emirates.
Honduras made a somewhat similar program, where a private developer can apply to the regulating body, and say, "Here's the investment we have behind us, here's the 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 all of these programs, the project is under a country's sovereignty – meaning it follows that country's constitution and international treaties. In the ZEDE program, the zones follow the Honduran criminal law, but they can create their own commercial law with the approval of the regulator.
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 law as well as commercial. So, the zone can create a full legal system, again, under the Constitution and under the treaties of that country.
It is this close partnership between the developer and the country to make a zone to bring foreign investment. 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. So, it brings in foreign investment, hospitals, factories, and schools, and people who are just 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, global nomads, who want to go live under this new legal system, and who bring expertise in starting businesses, and bring capital – they spend money and that helps the local economy. People from the region and from the country are always going to be the bulk of the people who live there. So, that's what it looks like.
The SEZ 2.0: A Modest Proposal
Bob Zadek: Patri, a little bit of context to this, if I may. First of all, lest our listeners think this is dramatic, radical, and extreme, I'll point out that the United States has had zones within it for quite some time. In Congress about three or four years ago, in fact, they created, I think they were called …
Patri Friedman: Opportunity zones.
Bob Zadek: Thank you, Patri. Opportunity zones. So, this is quite mainstream 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-"
Patri Friedman: Yeah, I will say about the opportunity zones. It's a pure tax thing.
Bob Zadek: Of course.
Patri Friedman: It's only a tax difference to spur development in those areas, but there are also free trade zones in the US. The level of difference in the special jurisdiction is much more like a special economic zone. But you're right. There are literally thousands of special economic zones around the world, including in the U.S. This is just the next evolution of the special economic zone – kind of SEZ 2.0 – these jurisdictions that get to bring in the best commercial law from around the world.
Bob Zadek: 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 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 presented yourself as a radical revolutionary, the concept is quite mainstream, although- [crosstalk]
Patri Friedman: In the old days, 15 years ago. I've grown up, and the movement has grown up. It used to be that the movement was in opposition to states, but the stage that we're at right now is 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. And they'll have a 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.”
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 small countries. Again, sharing their sovereignty, there's a progression of the special jurisdiction and how many of the laws are its own versus how many 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 let's say less than 15 from having an actually recognized one.
So You Want to Found a Startup City?
Bob Zadek: In the Pronomos business model, do you provide a kit if somebody has enough money and enough drive to carry through on the project? It's one thing to love the concept, as I do. It's another thing to get it done. Do you provide a starter kit and then the platinum package? 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, they will end up posting all your- [crosstalk]
Patri Friedman: Come my way. Come my way.
Bob Zadek: So, tell us when you are promoting your concept, who is your target 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: In terms of the kit, there isn't one. There probably should be. Like a lot of people, my partners and I had a very difficult pandemic – a very, very tough time personally – and so, we weren't able to do the extra work to put that kit together. We worked with our companies, we found companies. But now, that it's post-pandemic and we're growing our funds, and we're hiring more staff, we are going to be much more hands on.
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 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 on what people need. 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 will have the kit.
Our audience 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. These projects are done in a close partnership with the government. It's a public-private partnership for mutual benefit, so that's a very important audience. And we look for those few innovative governments that view themselves as startups. Generally, they're small countries and just want to take advantage of the fact that sometimes smaller is better because you can do bold things like creating charter cities.
On the founder side, one of our biggest shortages is 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.
There are a lot of people who are excited about the space, and 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. You can roll up your sleeves and start a company right now. We have opportunities that are ready for founders.
“We look for those few innovative governments that view themselves as startups.
Generally, they're small countries that want to take advantage of the fact that sometimes smaller is better, because you can do bold things like creating charter cities. “
And then, the third group is investors. 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 buildouts. 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, governments, founders, and investors, I would say, are our main audiences.
Bob Zadek: A couple of questions regarding the countries. Of course, you have to start with, obviously, a willing country. You can't just go into a country and plant the flag. Is the country asked to cede land? What is the country's relationship, first of all, to the land in which the city is? Because I presume, the core asset the investors are investing in is the buying land.
Patri Friedman: Along with infrastructure and buildings, yeah. And then, also 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. There are some countries that don't sell land – where the land is owned by the government and it can be leased. Sometimes, it's owned. Sometimes, it's leased. 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 actually contributes the land as part of their side of the contribution - because the government owns so much land in the country and wants to promote the project.
Investing in Futuristic New Modes of Governance
Bob Zadek: 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.
Patri Friedman: [laughs]
Bob Zadek: You have a long, clear political history. You have your views (I share them) about how the world ought to be organized, and what our relationship with our government ought to be. So, is part of the goal besides making money- [crosstalk]
Patri Friedman: All of my investors are in it because they want the world to change in this direction. This idea, it's too crazy to invest in just to make money, right? They think that if people can start new jurisdictions with different laws, that that will just be better for humanity. We'll be able to rearchitect our legal systems, and spread best practices, and create zones of prosperity and that that'd 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, to build a city – to build Singapore – you're talking 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. The only way to get that capital is if they're profitable. So, all of our investors are in it for the mission, but in order for the mission to succeed, we have to make money.
Our first fund is $13 million. Our second fund, which is also anchored by Peter Thiel and Balaji Srinivasan, is going to be $100 million. 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 pool is for them to make money. But that's nobody's primary motive. Nobody would invest in us just for that purpose. It's too crazy.
Bob Zadek: Who determines the political system and to what extent? Because you're going to need citizens. Is it a company town where the investors get to rule the roost? Are you offering democracy, like New England town halls? And how does the system change? Tell me about the government versus the citizens, who gets to make the rules, or is there more than one model?
Patri Friedman: Yes. There is absolutely more than one model. People often in my career asked me, "Oh, so, what political system are you creating?"
And I say, "No, no, no. This is about making a world where lots of different people with ideas for different legal and political systems can try them."
It's going to be different in different projects. When I think about some of our current projects – for example, in Honduras, Prospera is 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 are the commercial laws – we try to make commercial laws that people want, because those are our customers.”
Prospera is also 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 that add democratic elements to the zone over time, but there are other projects that are like small consensus-based groups, for example.
We're happy to invest in any model that seems like it's going to serve its citizens, and create economic activity, and grow. But the standard model really is the company in partnership with the country – working together to determine the regulations. Generally the company does all the hard work of creating the regulatory system, because that's their part of the job, then the country reviews 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 proving it.
“People have this idea that government should always be participatory, and I personally think that's actually silly. If Steve Jobs had asked me how to design the iPhone we'd have a way worse iPhone.”
People have this idea that government should always be participatory, and I personally think that's actually silly. If Steve Jobs had asked me how to design the iPhone we'd have a way worse iPhone. I'm the customer. My expertise is in what I want in choosing a product, not in designing it. Not even necessarily in picking the people who design it. I look at the end product and I 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. 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 tech startup 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.
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. I happen to think that in an effective city, there'll be a lot of market research, there'll be a lot of polling and understanding of the citizens, and then the company will try to serve them and provide what they need.
“People can create and layer on whatever laws they want in the type of society that you and I would like to live in.”
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 onto it and build whatever they want. So, if there's a neighborhood that wants to have maybe no cars… maybe they want to have 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 make the next person sign it. 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.
Voting with Your Feet
Bob Zadek: There is lots of foot voting going on in the United States – generally from the blue states to the red states or from the north to the south. What would you have to offer to catch the attention of a citizen – somebody living in Idaho – to move?
Patri Friedman: If you think about the size that these projects are, we're talking about needing tens and then hundreds and then thousands of people. We're not even at the tens of thousands yet. So, we don't need to win any 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, like capital – starting businesses.
If we got one in a million Americans, that would be 350 people – that's plenty for where the movement is at right now. You need to appeal to those one in a million. And then as you scale up, you need to appeal to 1 in 100,000. And in terms of what they're offering – this is an opportunity to go from talking about freedom, from talking about different kinds of societies to actually living there.
There's going to be some number of people who often are already location independent, and this has been a huge boon from COVID – so many more people becoming location independent – which makes it that much easier to go move to one of these places. People’s social life and family ties are 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.
“You need to appeal to those one in a million.”
One of our companies, Praxis, has 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 doom and gloom, and environmental pessimism, and anticapitalism, 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. That's an example of just how much interest there is. And that's plenty. A thousand ambitious young entrepreneurs? That's going to have an incredible positive effect on the economy of a city. So, we only need to appeal to that minority of people, who are really well suited to this right now.
A lot of the population is going to be local – and should be local – because the contribution of the city is going to be making jobs and increasing prosperity, increasing the standard of living for the locals. There are always other things a country can want, but by default, that's what you're giving in return for getting to create this. And so, most of the citizens, I think, should always be locals.
What Can Be Learned from Utopian Experiments of the Past?
Bob Zadek: In the history of our country, we've had experimentation with utopian societies. I think Utica, New York was an early attempt at utopian cities. We had communes in the more recent past. Those are, in a manner of speaking, experiments of people who wanted to check out of conventional political systems to 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?
Patri Friedman: Absolutely. It's very relevant. Those are experiments where people are saying, "We want to live in a different way." The vast majority of them fail. 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. You can realistically change how you live together if you humbly understand the reasons why things work the way they do, the reasons why we do the standard things, and then you 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.
There's very successful intentional communities all around the U.S. – cohousing communities in Scandinavia as well – that are built in a different way for more community time and facilities. And there's definitely a steady movement in people wanting to live together to co-live and to co-work. So, 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 radical that they're trying to do – where they're not really thinking about the practicalities, they're not thinking about on the ground. 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 shows it. You have to design communities where you're together on the question of, "Who's going to do the dishes?" But there are also huge differences. Like you said, these communities are not getting to change the laws and regulations. They're at a much smaller scale. So, there are really important differences, but I absolutely think it's one of the things that we draw on and learn from.
“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.’”
Bob Zadek: The Amish community 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, 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.
Patri Friedman: They work.
Bob Zadek: They have worked perfectly for a very long time.
Patri Friedman: They grow.
Bob Zadek: -without harming the host and while totally supporting those within the community.
Patri Friedman: That's right. Those are great examples, and they're examples of the rare ones that are succeeding and growing. Contrary to what I said about how it's unlikely for these to work if they have a really radical philosophy as their basis, the Amish have this radical anti-technology philosophy and it actually works. So, I think it's a really good example.
My dad studies 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, or anyone in the US, the fact that you go to US criminal court as a backup matters too.
I'm someone who sees a lot of benefits and upsides of technology and a lot of harm. And I would personally love to live in [a community] that examined technologies, and kept some, and discarded others, 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. Maybe everybody's phones are shut off at sunset. 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. As long as people have the choice to leave, then I'm in favor of it. 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.
The same for these startup societies. What matters to me is that people opt in, and that they're able to leave. Then, whatever the society – whether it makes sense to you or works for you – they're in free association with it, and you can just let people do different things that have diversity.
Envisioning Life Under Free Cities
Bob Zadek: Let's imagine one of your investments is up and running. It might be in the U.S., but not so likely…
Patri Friedman: Probably in the Global South. Yeah.
Bob Zadek: Let's 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. 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 the governments. It's clean, it's safe.
I live up in the mountains here in the San Francisco Bay area. 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. Visiting a country that just works, it's a delight. The airport experience is really different. So, I think that's part of it.
“I live in the San Francisco Bay area – there are places in San Francisco where it's pretty grim. Visiting a country that just works, it's a delight.”
For me, I would go back to my motivation for starting all of this stuff. About 21, 22 years ago, I graduated from college, and I started looking at the society around me and thinking, “Wow, this society does not fit my values at all. 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. It doesn't feel good to be part of a country that is such different values. And it'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 left-versus-right, red-blue battle, whoever wins, I lose. And I don't like that feeling.
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 technolibertarian 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 in 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 values, and that functions well and smoothly, to me, that's very appealing and I very much look forward to some time in the next probably five, six years when I can move to one of these.
Negotiating Criminal Law
Bob Zadek: In discussing Honduras, you mentioned that Prospera made what I consider to be a concession – it agreed to adopt or become subject to the Honduras criminal law system.
Patri Friedman: There's no question of agreeing or not agreeing. When Honduras created the program by changing its 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: That's a negotiation. But I guess it would be closer to your ideal – perhaps unattainable for the minute, but probably, in your ideal situation, the free city would design its own criminal law system, if they could negotiate that with the host country, because criminal law is an extension of morality to some degree. And when you mentioned that we're libertarians, that means we want to create the relationship with the government and ourselves in which an important part of that relationship is the criminal law system, i.e., what you go to jail if you do.
Therefore, living the way you want would mean, to some degree, 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 his own criminal law system, so long as it's not terribly offensive to the host.
Patri Friedman: That's right. I think it's partly a process of gaining trust. This is something where we have to actually build these sovereign communities, and have them grow, and have them 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 benefits. And then, as that trust grows, I think these communities can move along the sovereignty axis. As I said, my goal is fully sovereign city-states, but there are a lot of stages to get there.
Right now, getting to set commercial law and soon maybe criminal law in the next few years, I think that that's a solid degree of local autonomy that's really meaningful. 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. At some point, it makes sense for them maybe to create a new one – maybe breaking off and going back to the seasteading, maybe this is done in the floating city – so that you're not taking any land. But whatever it is, gets to 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.
There are people out there who think that you can hack sovereignty by getting some kind of recognition and then growing under that. I personally believe that's backwards. I think you want to be at the 20th percentile – meaning that 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 point where you can say, "Hey, we're well above the floor of countries. You should recognize us." Or maybe we just always plug into the sovereignty system through other countries. That's possible too. We'll see. It's going to be fun.
The Momentum Shift
Bob Zadek: Since you started the project, what have you learned? Specifically, what have been the biggest obstacles you've had to overcome? And share with us your success. What has helped you make sales, to be successful in a project? What have you learned about the friction for the very hopeful goal that you have?
Patri Friedman: Yeah, it's going really well. I have to 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 think the hardest thing has just been getting acceptance of this radical idea and getting people to take it seriously – winning hearts and minds. 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 we're going to get capital. And it's just because I understood technology and incentives, and the ways that the 21st century is going to be different than the 20th century.
In addition to the econ side, my dad's very much a futurist. He was in the early cypherpunks group that gave rise to bitcoin, and that was talking about these things in the 90s. So, I was very embedded in this futurists Silicon Valley world, and I saw the way that things were going to go. It is 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, just me just diligently putting in the time, talking to whoever will listen, addressing their concerns, coming up with good metaphors to spread the ideas, just getting the word out there. But I think that it's not something I did along the way that made it succeed. It's that I happen to be right about the direction of the world.
And now, in 2022 in this post-COVID world, there are all these small states that are thinking about innovative ways to win investment. And it's just the way that 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 10 countries should I focus on right now?"
Bob Zadek: 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.
Patri Friedman: That's right.
Bob Zadek: Owning land, per se, is just an expense. You've got to take care of it. You've got to protect it.
Patri Friedman: That's right.
Bob Zadek: 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."
Patri Friedman: Absolutely.
Bob Zadek: You're not really asking for land. You're asking to allow, in a way, to use their land for a better purpose.
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? 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?
Patri Friedman: We're fine on money for this early-stage investment and getting projects started. We do need partnerships with capital partners who can provide investments in $5 to $100 million dollar size. Projects are going to need that in the near future. And we have plenty of countries that are interested in working with us in potential sites. The biggest shortage really is the founders – A+ quality entrepreneurs that people who would 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, investors are always welcome. But that's not the shortage at all.
Bob Zadek: So, you need rich out-of-work mayors, [laughs] who are looking for something to be a mayor over.
Patri Friedman: Yeah. That's right. A mayor who's like, "I want to be a mayor/CEO. I want a lot more control over it, but that sounds amazing.”
You can follow us at pronomos.vc. It'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 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.
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