Today we welcome Erick Brimen, the CEO of Próspera, which is arguably the world’s first charter city, off the coast of Honduras on an island called Roatán. Erick is on the podcast to unpack the exciting news about Próspera, the philosophy behind its founding, and the vision for its short-term and long-term future. Our conversation covers a lot of in-depth detail on Próspera, with Erick explaining approaches to governance, reform, cultural integration, common law and so much more! Erick gives us a great introduction to the first of several planned locations for the Próspera project, also unpacking what this expansion could possibly look like in decades to come. We get in the choice of Roatán and the specific opportunities offered by the island, with Erick situating his reasoning within his broader interest in charter cities and economic expansion. Erick also talks about his work before Próspera and the lessons he brought forward from time in the asset management space and working with the government of Arizona. The conversation also covers putting together the right team of people, balancing skills, and preparing for an unknowable set of hurdles. From there, we turn to the legal side of starting a city, and Erick gives an insightful look into the various frameworks that have been put in place for management and legislation. The last part of our chat today is spent thinking about the residential experience of Próspera and the infrastructure, planning, and architecture of the city, with Erick capping off our discussion looking forward to 2050 and where Próspera might be. For all this and a whole lot more, be sure to listen in with us today! Links mentioned in today’s episode can be found below the transcript.
Transcript (edited for clarity):
Mark: Hello and welcome to the Charter Cities Podcast. I’m your host, Mark Lutter, the Founder and Executive Director of the Charter Cities Institute. On the Charter Cities Podcast, we illuminate the various aspects of building a charter city, from governance to urban planning, politics to finance. We hope listeners to the Charter Cities Podcast will come away with a deep understanding of charter cities, as well as the steps necessary to build them.
My guest today is Erick Brimen. He is the Founder and CEO of Próspera, what is arguably the world’s first charter city on Roatán, an island off the coast of Honduras.
Mark: Welcome to the show, Erick.
Erick: Thanks, Mark. Thanks for having me.
Mark: You are the CEO of Próspera. I’m not even sure that’s the right title, but you are the mind behind Próspera. Tell me what is your official title and what is Próspera?
Erick: Sure. It is CEO and it is Próspera, with an accent.
Erick: ‘For’ in Spanish. It makes a difference, because it talks to present tense versus future perfect tense. It’s a statement we’re making. Próspera is a platform for prosperity, seeking to create the conditions on the ground, wherever we are partnered with a host government, so that individuals can reach closest to their maximum potential. We realize that in order to do that, there’s a combination of the built environment, whether it is buildings and housing and infrastructure, plus the generally unseen world of governance, rules and security, and obviously, a healthy balance of a mixed economy for commerce to be taking place, innovation and wealth creation in general. At Próspera, we partner with governments to create a platform for prosperity, so that their people can reach their full potential.
Mark: Thanks. Let’s go a little bit more into depth on to this platform for prosperity. You mentioned two key parts, the built environment, as well as the legal side, the laws and regulations. You have announced your first project in Honduras, in Roatán. What does that look like in practice to develop this platform for prosperity? How do you both interface with government and how do you develop the built environment that allows for this higher than otherwise possible, economic growth to take place, or if you define that success in other terms and what are those terms that you would define the success in?
Erick: Sure. Indeed, Honduras is the first government we partnered with. It is the government that has gone the furthest when it comes to creating the enabling legal conditions for our vision and largely a vision for charter cities to be possible. The way it looks like is akin to a public-private partnership in the realm of the provision of governance services, where in the case of Honduras through a constitutional reform and enabling legislation, they have created a special form of special economic zones, no pun intended, but that is significantly more vertically integrated when it comes to more dimensions of providing good governance.
Special economic zones, as you know well, Mark, and your listeners as well, are nothing new. What’s special about these newer versions, or more advanced versions of special economic zones is that they seek to strike at more than just one layer of the overall cake. They are more than just taxes, or a particular regulation. In the case of Honduras, with their ZEDE system, they’ve really gone and understood what has worked best from various places around the world and created a very vertically integrated special economic zone regime, akin to a municipality with the legal and legislative powers of a state in the United States of America.
It is still very much part of Honduras. It very much has to follow key provisions of the Honduran Constitution. When it comes to pretty much everything having to do with local governance, of course, zoning and planning, permitting, but even beyond that, legislative equivalent actions, they have a high degree of autonomy.
The way that those political subdivisions, as they are, get designed, constructed and staffed is similar to a public-private partnership, where it’s a joint effort between the government of Honduras, and in our case, a private development group. By the law, it’s called a promoter and organizer. The effort goes through phases. In its initial stages, we had to come up with a number of proposals for how we thought the legal environment should be created, so as to follow best practice and importantly, attract capital and generate jobs, that process having been the very first time ever took a while, about three years, when it’s all said and done, and it was a lot of back and forth of proposals, discussions, some debate. Largely, really understanding what is really a best practice applicable in this part of the world.
When all that was not done, because it’s an ongoing effort, but let’s say, sufficiently done with a charter, with a set of enabling statutes, regulations, a governance structure and initial core staff, then we crossed into the next effort, which is more about the built environment. It’s just like software and hardware. You need both. Software can be great, but you need a piece of hardware upon which to run it for the full value to be created.
In our case, we chose to start in Roatán, which is a beautiful Caribbean Island that belongs to Honduras, a former British colony, where they speak mostly English, use the dollar predominantly as its currency, has an international airport. It is, interestingly enough, about the same size as the island of Hong Kong, one square mile larger than the island of Hong Kong. Yet, it has less than 100,000 residents, estimated around 75,000. It is largely underdeveloped compared to any of its Caribbean peers, like Grand Cayman, largely because the legal system upon which it is governed has not been as conducive to foreign direct investment and any other industry aside from tourism really to flourish.
We see great potential. As with everything, there are some challenges, but the challenges that an island such as Roatán has are largely things that can be overcome by investing in infrastructure and creating a critical mass of the right people, with the right mindset, pushing forward for a unified vision. Whereas its advantages, compared to the rest of Honduras, at least in the short term, are unparalleled. Not only is there international connectivity, but the heart and the culture of the people is very aligned with a multicultural environment; they see outwardly as full of opportunity. They are in fact engaged in exports, in everything they do, they were exporting fish primarily before. Now they’re exporting tourism services.
It’s a very outwardly-looking culture with its unique character, compared to the rest of Honduras. They have a sense of pride and wanting to be the very best. We think of ourselves as coming on board and partnering with the local population to unleash that potential. To wrap up the physical environment we have created a master plan that starts for a city scale development that starts with about 60 acres and can scale up to about 10 times as much, 750 acres to be precise, which is slightly larger than Monaco. We’re not trying to replicate Monaco per se, because the intended use of the physical space is about knowledge economy and predominantly Hondurans, but as a footprint similar to Monaco. We’ve broken ground. We’ve started to build some basic infrastructure. Our first building should be open for business here in the next month and a half or two, COVID permitting.
Mark: Yeah. Congratulations. I used to joke a few years ago that Honduras was the place where projects went to die, and so I’m happy to have been proven wrong, that you managed to persevere and succeed. I want to get a little bit more into some of the sequencing of how you actually put together a project like this, how you get buy-in from the necessary stakeholders, how you actually create this legal system from scratch.
Before doing that, let’s start with a slightly more conceptual level. Why are these governance reforms important and why does it matter to improve governance? Then, two, what led Honduras to actually implement these reforms that are really much more advanced in terms of the amount of decentralization of authority than in any comparable country?
Erick: Okay. I’m just taking some notes here, so I don’t forget.
Mark: If you do forget, just let me know and I’ll repeat the question if I can remember.
Erick: Well, look. It’s very clear that working institutions are essential for humans to achieve their maximum potential. I mean, this can go as deep as you want philosophically, or as superficial as just looking at the empirical evidence. Starting on the latter, it’s empirically demonstrated that where there are certain public institutions, prosperity is much higher on a per capita basis, or almost any other measurement, including how the environment gets protected, human rights are advanced in general.
It follows that the wealthier a society, the more it can take care of those things that are not so basic, like simply survival and eating and security. Obviously, they care about the environment and higher education, the arts, etc. Then you can see the correlation on which institutions are those and you can call them different things. But generally, a strong regime for private property rights protection, the ability for disputes to be resolved effectively, efficiently and fairly and for there to be a general sense of security. Of course, physical security has to bear basics. All the way up to legal and judicial security, so that you know that your contracts can be relied upon.
I think that anywhere in the world where there’s more of that combination present, there’s a higher level of wealth. Where there isn’t, then you can see it through measurements of corruption, or lack of rule of law and various indices try to measure this, then the correlation is just unquestionable. Empirically, where there are these institutions, people do well in the aggregate and then by individual basis.
I think philosophically, it has a lot to do with the nature of humankind. Insofar as we’re not robots, we have our individual freewill and that can be its own philosophical debate. I think largely, everybody recognizes that on any given day, you make choices. You decide what you want to do next. The way you make choices has a lot to do with the environment around you. It’s not the only thing. Context is not the only thing that determines choices, of course. Your values and your principles and your objectives have perhaps a predominant role. The context inside of which you’re making choices has a huge role, because it either reinforces, or pushes against a certain type of choices that you can make.
I think a free society where people get to enjoy the fruits of their labor, generally incentivizes people to choose to work harder, choose to seek a better outcome, solve problems. That ultimately, in the aggregate in any given society, makes everybody better off, because more problems are being solved and people are working harder. Whereas if it were a situation, where it doesn’t matter what you do, you’re going to get exactly the same basic outcome, then obviously you’re going to just work as hard as the average, or eventually the bare minimum that you need to in order to get whatever promised outcome you’re getting.
I think it has a lot to do with the nature of humankind as a thoughtful thinking race and species. That’s with regards to institutions. Now with regards to why I think Honduras has been able to create the foundations, it’s often said that necessity is a mother of invention. I think in the case of Honduras, it’s also been a combination of enlightenment by a handful of reformers that really and passionately want the best for their country with dire conditions and a very high degree of need for something different to emerge.
When you find yourself desperate and see tragedy around you, because you know your people can do better, you’ve seen it, you’ve traveled. Then on top of it, you see that there are places that were more poor than Honduras in a couple of generations, 30 years or so, have become one of the most prosperous places on earth, like Singapore for instance. Then you start to make connections. I think in the case of Honduras, there’s a handful of reformers, of founding fathers, equivalents to the U.S. that were wise enough and courageous enough to not only identify what were things that worked elsewhere, but to pursue relentlessly, implementing those within a legal framework that had durability and that was as compatible as possible with the current, say power structures, cultural and legal traditions of the country.
It’s easier said than done. It’s been well over 10 years of effort just in this iteration. Before that, there were several attempts to cause reform to happen and they failed. Then we can get into the benefits of doing zone level reform, versus national level reform at some point. It’s been demonstrated that if you want to go deep and create solid foundations, you can’t afford to do it all at once.
Anyway, so I think institutions are key and I think Honduras had a significant need for institutional reforms and realized after many failed attempts, that trying to reform everything at once was probably impossible. They went to different routes; a route that has worked elsewhere and that’s where the ZEDE has come from.
Mark: Cool. Thanks. I don’t know, building a new city with a new legal system is to a certain extent, a herculean task. You have all of these different moving parts. You need to get land. You need to coordinate with government. How do you think about setting priorities? How do you stagger the sequencing of all of these different tasks? How do you set the priorities in terms of fundraising, in terms of hiring, in terms of land acquisition, in terms of government? Then how do you sequence all of those conversations to make sure that you can have all of the pieces in the right place and then take off, hopefully, once that happens?
Erick: Great question, Mark. In our case, being the first, if you will, at creating a ZEDE and breaking ground, maybe we’re not the best example in terms of just what the sequence is to start a city. Cities as you know well, are getting built all over the world. Then they get started with various degrees of either legal neutrality with its surrounding, or its legal autonomy. Most cities have some degree of legal differentiation.
Now what’s unique in our case, it’s that it’s not just a new city scale project. It’s a whole new legal system. At a necessity and also because that is the dimension that we are most interested in, since we think that it’s where the biggest opportunity lies to make the biggest difference. There are various ways to make a city be better, whether it’s technology, or better master planning, or marketing. There’s a number of ways, generally associated with the physical built environment. Where we think the biggest opportunity lies is in the intangible space.
For us, the sequence had to do largely with first, seeking to get that right, or at least as right as we can imagine, before starting to build the physical environment. For us, it was all about that first. Obviously, in coordination and communication with various market players that were slated to be early movers in various industries, we think that are going to be advantaged by this reform. Then after that, of course, you got to identify a good location. Good is a relative term, but generally speaking, if you’re in the middle of nowhere, it’s going to be harder. If you’re closer to existing population centers and infrastructure, then you get to ride on those prior investments and economies of scale.
You have to have a master plan, so that you understand where to start, what the capacity of future outcome looks like and therefore, modulate your early investments, and you can sequence how much infrastructure versus how much in vertical development might be the case. In our case, it started with the legal side. We needed for legal reasons, to acquire land early in the process. Now, we’re at the stage where we’re developing that land. Our fundraising followed more or less that requirement. Traditionally, cities don’t invest as much time and money proportionate to where we are in the built environment, but we had to build something from scratch and for the first time.
We followed a more traditional startup fundraising roadmap, if you will, where you’re raising capital more on an idea and on a vision and some initial intangible progress. In our case, it was a seed round, then a bridge round, then a series A round. That’s what we’ve done. We’ve recently closed a series A round in the middle of a global pandemic, no less.
Erick: Yes, thank you. I’m also proud to say, we oversubscribed by a wide margin and brought in a handful of very exciting investors that share the vision of lifting people and employing this technology of governance as the key to make the difference. Very, very excited. Now it’s about delivering results on the ground. Whereas, I could say maybe nine months ago, we were still very much at a stage where we are investing our own resources, founders and angel investors, putting everything we got to make this happen.
We’re now at a stage where though with series A level capital, so clearly not the totality of what we’ll need, we have a network of investors, which have been behind some of the biggest projects out there that are world-changing, including SpaceX. I think right now, whereas before, if we execute, we weren’t even sure that we’re going to necessarily have the financial backing. Right now, we still have execution risk and we still have to deliver. I feel better than ever that we have the right partners backing us to make this everything it can be going forward. Anyways, that with regards to sequencing. I think I answered the question. If I left something out, please let me know.
Mark: No. I think that did answer it. Several questions before getting a little bit more specific into some of these, some other categories. You chose Roatán to start Próspera. Why Roatán? For those who don’t know, Honduras has or two main cities; Tegucigalpa, which is the administrative capital and then San Pedro Sula, which is the manufacturing capital. The administrative capital, really, there’s not as much industry there, but San Pedro Sula does have a strong manufacturing base. Why did you choose Roatán over San Pedro Sula?
Erick: Well, for a number of reasons. I’ll try to cover as many of them, but the ones that come to mind as the most important include, when we were looking at Honduras as the best place legally to initiate this vision, it wasn’t necessarily the best place in terms of international perception, into which to attract foreign direct investment and the best and brightest minds to really solve this problem. It’s an opportunity as well.
San Pedro Sula, as little as 10 years ago, or in fact, I think probably five years ago, when you Googled it, it was the international murder capital of the world. You said, well, that’s where the greatest need is. To some extent, it is true. We’re trying to fight as few battles as possible in order to get to where we’re going. We need to pick our battles. Trying to convince the world that even though San Pedro Sula has historically been a murder capital of the world, that’s where international capital should go and where Próspera’s new society can emerge. It occurred to us at the time as a bigger hill to climb.
Roatán on the other hand, it’s already an international destination, where 1.2 million foreigners visit per year. There is an existing expat community. Crime rates there have historically been effectively non-existent. There’s a number of ingredients that need to come together for a significant enough amount of investment and creativity and innovation to occur. We thought that that sense of security was very, very important. That was one thing that tipped us heavy towards Roatán, because it was the best place out of the whole country of Honduras, at least in that dimension.
It’s also a beautiful place and there’s so many things about it I could go on, but that was a significant factor. I would say related to that, a key question that kept coming up for us and by third parties is the political stability of the country. It seems like whenever there is a change of government, or some controversy, there’s a lot of protests and disruptancies when it comes to just the ability to produce and export, and all of those happen on the mainland.
San Pedro in particular, is a hot spot for social unrest. It is the manufacturing capital of the country, but that doesn’t mean that it’s the wealthiest on average. A Gini coefficient there is probably as bad as anywhere else. When you’re in the middle of creating something, the last thing you need is social unrest. Roatán historically has not had any of that. In fact, in the last episode, we were in the middle of getting the ZEDE created in 2017, and there’s a change of government, or there could have been a change of government, new presidential elections. The whole country went on martial law, except for Roatán, because they depend on tourism.
The local population recognizes that it is not conducive to good economic activity if they are protesting on the grounds, or disrupting the general sense of security. There’s a self-correcting nature to how the local population thinks about how to deal with things that hey, it’s not perfect there, but they know that they’re shooting themselves on their foot if they seek to solve problems through large-scale political unrest. That was a second related to the first element.
You know, Mark, when we looked at (and you know this clearly, because when we’re working together, you helped us visualize some of this), when you looked at different examples around the world of what has worked and what are best case scenarios, we came to this Hong Kong to Shenzhen analogy early on. We think that the same is possible in Honduras. We start in Roatán with a vision of unleashing there a Hong Kong-like jurisdiction. By that, I mean, it’s primarily a knowledge economy, service-focused with a financial hub, that then serves as a platform onto the mainland, where more traditional industries like manufacturing can take place.
While we focus primarily on Roatán, we also have a hub that is in the making, right across the water in a city called La Ceiba, east of it. The dynamic we’re seeking to replicate is precisely the Hong Kong to Shenzhen and the rest of mainland China dynamic, where as you know well, Shenzhen was just the first of these – they’re not called ZEDEs, but similar special economic zones with deep reform at the institutional level, that then not only was it itself very successful, but spread very rapidly through the rest of the mainland.
When that happened, Shenzhen itself was not a major population center. It wasn’t the manufacturing hub. It wasn’t any of those things. What drove its transformation was the legal reform and the connectivity to a hub of capital and knowledge, which was Hong Kong. Now we’ve got as much, we’re trying to compress what happened in Hong Kong, say not in 30 years, or I guess 25 years by the time this initiated, and we’re trying to do it more like in a tenth of it. Two and a half to three years.
I think in the world that we live where capital flows very rapidly, where a lot of people get the transformative power of this reform methodology, that I guess what we’re betting on is that we can make that happen in a much shorter period of time and we’ve already secured land on the mainland, with which to expand for a more traditional, say manufacturing hub that can benefit from larger scale footprint, from access to hundreds of thousands of Hondurans that seek to leave each year in pursuit of better opportunity elsewhere.
We think that instead of them leaving, they can stay at home in a place like La Ceiba and be part of and benefit this creation of prosperity hubs that we hope to unleash. Then from there, if our bets are right, what we’re doing with Próspera is not just a particular city scale development, but perhaps more importantly, the foundations, thus, we call it a platform for multiple hubs to emerge. They don’t need to be all created by us, or even managed by us. The idea is that some of these institutions that are being created from scratch benefit from network effects and from economies of scale.
The biggest and hardest thing we have to do initially is to create those. Once created, third parties can basically plug and play. They can use the Dispute Resolution Arbitration Center, they can piggyback off of the common law, the restatements of common law, they can benefit from the network of service providers for general centralized services that make more sense to do in that way. That’s why Roatán, there is a connection to the mainland and it’s not limited to just those two, but we see those as the two-punch combination that has proven itself to work very well in the best example of success that we’ve seen anywhere in the world, to drive economic development on a large scale, and that is Hong Kong to Shenzhen.
Mark: Great. Thanks. You answered some of my next questions too. Let’s switch gears a little bit. How did you get interested in charter cities? I don’t even know if that’s your preferred term, but let’s go with it. This is the Charter Cities Podcast.
Erick: Yeah, of course. You know, Mark, I’m a Venezuelan by birth. I grew up in Venezuela up until my teenage years. The genesis of my interest in this reform methodology is about the significant wealth disparity and opportunity disparity that I saw in my country of birth, where a select few had tremendous wealth and access to anything they wanted and the vast majority didn’t. That got me on a journey to think about why that was the case. Is it that these people have some issues, like personally, genetically, or what have you, or was it more than that?
Clearly, I eventually realized that it was a systemic problem. It wasn’t just an individual problem. I mean, don’t get me wrong. The way people make choices ultimately has a significant effect, but if the system is stacked against the majority of population, then it has negative effects. That’s what got me started in realizing as a young kid, that the world could be a heck of a lot better. Going through a military academy and then Babson College to learn about entrepreneurship and wealth creation, I got this distinction between wealth redistribution, which was the formula that was pursued in Venezuela under the Chavez regime. Then wealth creation, which in a way is at the genesis of the United States of America, and many other societies that have ultimately flourished.
It’s a subtle distinction, because you would think that poor people need wealth in order to access the things they need, and so any way you can get it to them is good. It turns out that that’s not exactly the case. You can destroy the fabric of society by seeking to redistribute wealth, as opposed to creating the conditions for wealth to be created and for that wealth to reach as many people as possible, by then being part of the creation process. I got that distinction and that painted a very clear, bright light as to what the generalized conditions should be for people to prosper. Then the how to get there was where the rubber meets the road. I mean, one thing is to talk idealistically about the world and how it should be, and then the other is to chart a plan how to get there.
Around 2013, 2014, Babson College, my alma mater, launched effectively a think tank slash consulting practice focused on rolling out entrepreneurial reforms throughout the world, in partnership with countries delivered via city scale projects, which they were calling enterprise cities at the time. This emanated from their observation that they were previously helping countries set up entrepreneurship schools, universities only for those graduates to go into an economy that was fundamentally incompatible with entrepreneurial undertakings for a number of reasons; whether it is the cost and friction to initiate, to start a legal entity, a company. Then everything else that follows, like rule of law and contracts, I mean, justice.
It was natural for Babson to realize that there needed to be legal reforms, not just reforms at the college level, but in the economy. When they realized that through consulting services, that that was pretty much impossible, then they’ve developed this additional methodology to say, well, you’re building new cities anyways from scratch. What if those new cities are giving birth, if you will, with a more entrepreneurially, friendly, legal environment. That’s what Babson was doing. Since it correlated so directly with a lot of the work I did while at Babson, doing economic development as one of my focus areas and thinking about institutional grade reform, it automatically resonated with me. It just clicked. It occurred to me as the way to deliver the systemic transformation that was necessary, especially in countries that needed the most, in developing countries.
I quite literally raised my hand, reached out, was connected with a managing director at the time called Shanker Singham. That’s where what we’re now engaged upon was born from. It was intended to be a partnership with Babson, to help provide the business model and financial structure to support the vision of rolling this reform methodology out. Initially, we thought about it more like a venture capital fund that would create a portfolio of a number of investments, hopefully. A handful of them worked, but we anticipated most of them probably wouldn’t get past early conversations with governments. We knew that if just as one or two of them worked, that they would pay for all the other failures and that’s to generate a profit.
I think we were probably what? Five years, seven years, I don’t know, 10 years too early with that approach. The market was just getting created. I mean, that’s when you and I connected, Mark. This whole industry, very few people were talking about it. Clearly, there weren’t that many opportunities around the world that were investment-ready. Through a painful process of realizing that both going from very – being very idealistic, saying, “Sure. I mean, just create a portfolio of these and push them as much as possible,” we came to the conclusion that that was a flawed approach, at least back then. We needed to concentrate every ounce of energy, resources, human talent, everything in at least one, to get at least one created and have it be a demonstration of success, or what can happen, as opposed to being thinly spread.
That’s how we eventually went from the model that we had back then, to deciding to partner with the government of Honduras and focus at exclusively not just the government of Honduras as a country, but initiate with Roatán with a very specific niche that we’re after in the short-term, with a belief, a trust, a certain degree of faith that if we get it right at a micro-level, then the investments we have done as a platform will enable rapid growth directly by us, or in partnership with third parties that want to develop their own charter cities, or city scale projects, and we can be enabling partners in a value-for-value exchange.
Mark: Great. Thanks. How has your prior to starting Próspera, or NeWay Capital, which was the, I think, asset management firm that you just mentioned, what was your career? You worked in mergers and acquisitions, so how has that experience then influenced how you approach charter cities, how you built out the team? What I’ve increasingly found for example, as I’m building out the CCI team and as I interact with other folks, is a lot of these things I didn’t really think about, that were somewhat of historical, I don’t know, coincidences, decisions have actually had a pretty substantial impact on my thinking of an action.
How have your previous on a professional and as well as non-professional — you talked about Venezuela, but there might be some other inputs that you’ve noticed have had an effect on how you think about building out Próspera.
Erick: Yes. Without getting into the mystical or religious, Mark, I look back on my career and experiences and often get mesmerized by how perfect it feels like. It’s like what Steve Jobs said about connecting the dots backwards. Many of them feel as if I was just this is exactly what I need to be doing. Yes I did M&A immersion acquisitions, primarily cell side. Then I flipped to the other side, did commercial due diligence. Being in the world of investment banking, private equity and just say, high finance, it’s been very valuable, because people often try to understand, or ask me what is the most important role that we play.
In a way, it’s being able to bring various parties together and create a platform that is connecting different efforts. This is playing off a lot of mergers and acquisitions, private equity portfolio building, where for a lot of the critical dimensions that need to be created, it’s made more sense to partner with third parties, sometimes provide seed investment and then build a portfolio of enterprises and teams that are in a quasi-decentralized fashion, but with a common vision pursuing this, which we’re seeking to unleash.
Being able to structure deals and align people and trying to make it work is something that so far has been very, very important. I don’t know that I would be able to do it, or have been thinking about it in the same way if I hadn’t had that experience in the past. Other experiences you ask, maybe not so much in the professional realm that are relevant; I was fortunate to be part of a organization, I still a member of, called EYES, Emerging Young Entrepreneur Society.
This is a group of international entrepreneurs from all over the world in the 20s to 30s age range, that are doing what entrepreneurs do. Understanding that early stage of what it looks like to start a business and not just once, but through a network has been very valuable too. Many of those people are involved in this endeavor and will become increasingly involved as well from being investors, to being some of the early companies that are setting shop within Próspera, to providing services.
Again, these people not for ideological reasons per se, but understanding what it takes to create an enterprise and being passionate about the process, and wanting to enable others to have the opportunity get what we’re doing and are part of it. I was also fortunate in the United States 2000 and – one of our first efforts, actually as I think you know, Mark, was in Arizona and partnership with Governor Ducey, who graciously asked me to be a co-chairman with his chief of staff for a committee looking at prosperity zones in the US following this methodology.
That effort ultimately did not succeed. Going through having to register as a lobbyist in a state, working with the legislature, with the executive branch and championing reform effort, showed me the underbelly of what it takes to cause significant legislative action and just legal reforms. It’s really humbling, actually. It’s very hard. It takes a while. There’s a lot of randomness in the process that even if you’re doing everything perfect, things can just not work out. There can be personal grudges between legislators that are key in various committees as it happened in our case.
Any case, that having been a registered lobbyist, which I never thought I was going to be, going through that has also informed a lot of what we’re doing now and at least with a certain degree of humility, recognizing that it’s very valuable that the legal system is already in place.
Mark: Yeah. One of the things that I’m increasingly thinking about, so for context, CCI has gone from three people in February, now we’re at nine and the tenth person will be added probably in about a week. I’m increasingly thinking about how you actually grow, both an organization, what skill sets you look for, how you get the right vibe, the right culture, the right mix. Then with CCI, we also see ourselves trying to grow the Charter Cities ecosystem in terms of who to partner with, how to get that right set of ideas.
Particularly for CCI as an organization, one of the things I’m trying to balance is this focus on international development. We think that there’s a lot of overlap with the international development community and charter cities, the international development community cares about global poverty, they care about urbanization, they care about these things that charter cities can really help make a dent in. The challenge is the international development community tends to be a little bit conservative in their thinking, in that they don’t like new ideas. They tend to think about, I’ve had this experience at the World Bank chatting with folks, basically saying, “Hey.” They come up with 10 reasons why it won’t work, rather than trying to think of why it will work.
We looked a little bit more to Silicon Valley to have this entrepreneurial spirit, how do you actually figure out problems. Like this is not insurmountable. You just have to think really hard. It’s been interesting seeing some of our early staff. Previously, we had a conversation where it’s like we’re developing for example, the governance handbook, which is a step-by-step process for how to create a new legal system. Early, they were questioning like, “Mark, are you sure that you’re the best person to guide this, to lead this? Isn’t there some expert we can talk to?” It’s like, “No. You just have to figure it out. You have to be smart and bang your head against a wall until you come up with some solutions.”
They’re increasingly seeing, talking to the various academics that the academics tend to be action averse. They need to have perfect knowledge to do something, instead of realizing no, you have to get the best possible knowledge that you can in a reasonable amount of time and then make a decision and move forward. If it’s reversible, you can make that decision earlier. If it’s irreversible, or take a little bit more time to gather with this sense of how you actually, I guess, build things.
One of the things that we’ve been trying to do internally is have this balance. Have the knowledge and the expertise within the international development community, but also mix that with folks who are more entrepreneurial, who are a little bit more risk-taking, who have this understanding of what it means to build things. We’re trying to as we hire and staff up, build out that right balance of folks, which is as I’m increasingly thinking about this, I’m wondering how you went about building the Próspera team. What is this balance of skill sets that you’re looking for?
Obviously, you need the specific positions to fill, where it’s like, I have X that needs to get done, so we need somebody who can do X, but then you have the broader, I don’t know, organizational cultures, organizational backgrounds that I think you need to bring together, one, on the team itself, and then two, with the whole project. I’m just wondering, if you could go into a little bit more depth in terms of how you think about that.
Erick: Yeah. Great question, Mark. Well first of all, the international development community, I think you’re right that they’re not necessarily going to be the ones creating the brand-new models. That’s an institutional design. It’s just the way it is. They’re not necessarily structured to take on risks. Though I’ll tell you, I think that the DFC coming out of OPEC, probably from what I gather on the bleeding edge of being innovative when it comes to seeking and being willing to back new solutions. Even then, it’s a very institutionalized approach. I’m not sure if it’s a feature or a bug, but it doesn’t fit quite well with creating something from scratch. That’s for sure.
At the same time, there’s a lot of knowledge and experience out there in the world about very related things to what we’re seeking to do. To throw everything out and say, well, it only takes being smart and hard work to figuring it out, it’s not exactly it either. The way I think about it is there’s a number of dimensions of things that we need to get right, which have been done before and we don’t need to innovate too much in like, building roads. There are innovative ways to do it. There’s certainly solar roads that you could do, but is that what’s going to drive the biggest benefit? If not, then don’t innovate on top of innovations. Focus on the things that are at the core and that need to be innovated around.
For us, that is in the legal dimension. That is in the realm of the institutions that we’re co-creating and everything else is somewhat secondary, with a few exceptions. The main one has to do with the way in which the built environment gets built, the construction industry as an industry that is rather archaic, not very innovative when it comes to how things are actually done. We are partnered with some world-class institutions there to roll out some interesting innovations.
When it comes to the team, Mark, I would say by far, the most important thing for us has been alignment of purpose and vision and passion, with being super smart and then balancing that off with a handful of experts, subject matter experts, been there, done that, got the t-shirt for it type individuals. I have a team of young, hard-working, passionate and smart people driving. I say young, but in reality, I mean, it’s of all ages, to be fair to Gabe and Nick and others. They haven’t necessarily done this 10 times before, but they know deep down that there’s a better way and they’re willing to discover it by not only research, but logical deduction and first principles thinking, balanced with people who have been there, whether it’s an Oliver Porter, or a Tom Murcat, or a Shirak Saha, that literally were there in the creation of Sandy Springs, or Dubai, or Songdo.
It’s a balance between the two. The creators and innovators, with those who’ve been there, done it. They do need this connected tissue of wanting to try new things, but you can’t expect that those two extremes are going to do the same thing. Those in the international development realm are great to be more of a sounding board, I think, than they are to come up with a brand-new idea in this dimension at least.
I would say, there is one cultural dimension to Próspera and NeWay that I think it’s probably at the source of, or our ability to get this far so far, and I think it’s going to be key to continue making progress. I refer to it as being like water. It’s not necessarily the same way it’s meant, but to me being like water is you have to be somewhat flexible. Water from the top of a mountain down to the ocean, eventually gets there. It goes through obstacles, either by going around them, over them, under them. Heck, if the water stops and there’s a damp form, it creates enough pressure to then push through.
It’s this destination to get to where we’re going and everything in between are just things that you work through. They’re not this tragic thing that now you have to stop. No. There’s always a way around. I think it’s maybe easier with this type of endeavor, Mark, that we know that we’re out to create something where everybody is better off in the end. It’s not just a Próspera thing. This reform methodology, ultimately is about making as many people better off as possible.
I think even those that are in other extremes ways of thinking can relate to that. They might not agree with the methodology, but they can relate with the intended outcome. That helps a lot. It takes work to align, but because we’re fundamentally after something good and worthwhile of our time that is very much necessary, I have found that it’s generally only a matter of time and effort to get enough people onboard, to at least get past the particular obstacle on to the next challenge.
Mark: Great. Thanks. Let’s start, I guess, a little bit more of a deeper dive. That was the introduction. Let’s go deeper. Let’s talk about the legal system. There’s a few folks who have created a legal system from scratch in the Dubai International Financial Center, but that was really only focused on finance. You’ve led this team creating a legal system from scratch that didn’t just touch finance, but touched really all aspects.
I mean, the ZEDE law basically requires the constitution remain this international, treaties remain the same, criminal law remains the same. Then other than that, you have almost a blank slate within which to create a new legal system. Can you walk us through that process?
Erick: Sure. Where to start? Well, I’ll start with the basics, which is in our case, we needed to decide what was going to be the core legal system. Basically, common law versus civil law was a core working decision. We went with common law. Why? Because it’s emerged organically. It’s more strongly correlated with higher degrees of wealth creation and the major financial and business centers around the world run on common law.
Not that that was an easy decision, but at least it’s fairly straightforward. Also, it’s the nature of organic evolution of common law. It’s very important to us, because it correlates with our values that no matter how hard you work and how good you start, on the next day, certainly the next five years and for sure the next 10 years, if it doesn’t evolve, it’s outdated. Common law lends itself to that, in fact, has evolved through thousands of years as a result. Common law was the base layer of the principles of law that we’re going to – that we adopted.
For this, we created what is called the Roatán Common Law Code, which is a combination of restatements of US common law and other international common law standards. A good chunk of it was curated by Tom Bell through his Ulex system. Then internally, we have gone through and statutorily and also in adjustments that we’ve done to the restatements themselves, made some corrections that we thought were important, or at least some adjustments that we thought were important. In the US in particular, the way common law has evolved over the last 40 to 50 years has some flaws when it comes to the balance between equity and justice. Maybe too much to the side of equity and not enough to the side of justice. In any case, those are our judgment calls. The common law was the base of it.
Then we needed to create a layer that essentially created not just how to deal with more industry-level matters. It could be that there was no regulation. Industries don’t need to be regulated. Everything runs in common law, that with tort law, balances itself out. That’s not the way the world operates today. There’s a number of industries that are generally considered more risky than others and are therefore, more heavily regulated than others.
Instead of trying to go in there and come up with a deep, detailed set of regulations for each of these industries, what we did is we went more through a macro-analysis of what were those industries that seem to be more legitimately representing risk to public health and safety. Instead of regulating it from scratch, we created a system where operators can choose. It’s basically a peer country system to start, where there’s always countries and then there’s some pioneering countries when it comes to being more advanced in how they regulate certain industries.
What we did is say okay, for let’s say medical, this is an industry that’s highly regulated around the world. How are we going to regulate? Well, one option is that an operator within the space can choose amongst the pure country list, mostly OECD countries, all of which are considered internationally to be very high-standard, let’s say best practice. We are not capable, or we’re not willing to say, this one is the best across the board for everything medical, because it’s not true. Some parts of the medical industry are better regulated, say in Singapore, whereas others are better regulated, believe it or not, in Canada and the UK.
Instead of us trying to go through the crazy effort of going through every industry and every niche within the industry, we created a system where it’s basically polycentric in a way, in it that operators can choose, they must all choose amongst a high standard set of options. Then when it comes to enforcement, because now you don’t have one system, you got whatever, 300 options to choose from. There is an enforcement mechanism that relies heavily on insurance and a decentralized way of having legal standing for anybody that is potentially affected to be able to make a claim and seek enforcement action.
We don’t need to be experts in any one system, or 300 of them. What we have is a system where the regulated parties effectively pay for insurance, which covers the random inspection that they’re following whatever standard they have chosen. Again, very high standards across the board, so nobody will claim that an OECD country doesn’t have a properly regulated, say medical industry. They can argue as to which one is better for different niches and that’s fine. That’s the market deciding. On day one, in Próspera, by definition, you can have the best of what the world has to offer all in one place.
Bureaucratically for it to stay thin layer on our end, we’re working with private, financially incentivized third-party insurance companies to help deal with the enforcement mechanism, just as the insurance industry does already when it comes to construction and medical. I mean, this is an expertise of theirs. They ensure risks. Public health and safety is a form of risk. The way to mitigate it is by following best practices to minimize the probability that what you are doing as a whatever, hospital, minimizes negative externalities.
That’s I think the core of what we have done in order to be able to get started covering all bases from day one in a testing world status, from day one. In addition to that, we do have a mechanism by which on a case-by-case basis, an operator can come and through the internal governance structure, which includes the council and then an oversight committee, there can be proposals for either modifications to the already existing international standard, or the creation of a brand-new regulatory system that might be necessary, with some important caveats to prevent corruption and cronyism. That is if indeed this process goes through and it passes the filters that are demonstrated to be best practice balancing risks, it becomes an option available to anybody else as well.
There’s language use that anybody else that similarly is situated, can then opt into that as one of the various options in the regulatory portfolio that Próspera is compatible with. Just like you could choose say Sweden – now there is Próspera version one regulatory system. This keeps it extremely dynamic, very competitive and at a high-degree of customization from day one, without having to create all this crazy level body of law for every single possible industry.
We did allow for the third option, which is in fact, just operating under common law, but with important caveats as well. That is the two or three key components. One, the legal system pierces the corporate veil when it comes to managers and shareholders. If you choose to operate without following a safe harbor regulatory regime, you can, but you cannot then hide behind a paper entity, saying that, “Well, it wasn’t me. It was the company and the company doesn’t have assets. Therefore, I’m not liable.” That doesn’t happen.
Legally speaking, if you choose that option, that’s fine. But the corporate veil does not protect you against liability to third parties to whom you may cause harm. You’re exposed to travel damages. As I said, even if you have insurance, which you can, ultimately the individual’s management and shareholders can be held personally liable for negligence and harm to third parties, for that they might cost through negative externalities.
I mean, in those three realms, whether it is the common law approach, which is risky, but for some operations that to the operator don’t represent much risk is an option, pure country regulatory system with insurance, or a custom safe harbor regulatory environment, which will evolve over time. I think ultimately, we’re starting on day one with picking the best that you want to, or let’s create something even better. Over time that as common law has emerged, will cause the regulatory environment to emerge as common law did.
I guess in summary, we have common law with all of its benefits of being dynamic and evolving over time, and the layer which historically doesn’t have that. The regulatory layer, we have created a synthetic version of a common law dynamic within the regulatory structure, because on day one, you can choose any of the high standards, or create one that emerges over time in a very open structure. I mean, I could go on for hours about the legal system, but in a nutshell, I think that’s the most important part of it, at least when it comes to the laws and regulations that governs, let’s say the rule set, that governs how business is to be done.
Not all industries are regulated industries. The more hazardous ones are regulated. Then I guess, we can go more into the enforcement, dispute resolution, security dimensions of the legal system. Those are important. I guess, you were asking more about the legal part itself.
Mark: Sure. Yeah. We can get to those in a few minutes. To me, what I see is one of the primary advantages of your legal system is one, it does allow best practices. It does allow this evolutionary approach. For example, it also lowers what might be relocation costs. If an American company moves, they are already familiar with the American regulatory regime and can just choose that. If a French company moves, they’re familiar with the French regulatory regime.
I imagine that those figuring out new legal systems is probably not a trivial cost in moving. I don’t really know, but that’s my guess. To me one of the – maybe you have a good answer for this, but one of the challenges I see is that it’s not clear to me. I see legal systems as being bundled. There’s this discussion, for example, Patrick Friedman, he talks about this very frequently, like law as code, where you can take different pieces and cut and paste them within a new legal framework and get a good result.
It’s not clear to me that that is I guess, how law works. For example, if you take French regulation for I don’t know, let’s say like pharmaceutical manufacturing, which might be dangerous, because you’re mixing a bunch of chemicals. That has some dependencies on the broader French legal system, where our court case of precedence, where there are – it’s not easy to take that out and plug it into a different system. Maybe there is a good answer for that, but I’m not sure how that would work in Próspera.
Erick: Yeah. Well, that’s where then the judicial equivalent, or the Arbitration Center comes into play. The truth is that even if you’re super prescriptive about everything and you only have one system which you deem to be perfect, the reality is that when there are issues that come up, there’s always going to be some interpretation as to whether the principles, or the letter of the law, or regulation were followed. I mean, this is always the case. It’s never black or white.
When it comes to this situation and especially because there is a common law backdrop, I think the French run in a civil law system, so there are going to be some conflicts between common law principles and civil law principles. When it comes to common law principles and for example, tort law, there are clear standards that talk about what is negligence, to what extent you should have known, could have known and they or didn’t do enough about to prevent the risk and therefore, third-party harm.
In the end, Mark, when it comes to it, those judgment calls are going to be made by a qualified judge. Now what Próspera has done is that it’s created this Próspera Arbitration Center, with a bench of world-class judges, including supreme court justices at the state level in the United States and Australia. These are people that are in the business and have developed in some cases, multi-decade careers, and looking at complex matters and resolving. You said you’re going to operate under the French system. Okay. Well, what were you supposed to do to ensure the safety of the public and did you do it? What is the basis for you to say that you’ve done it or not?
We, I guess, took a more humble approach and saying, look, we don’t need to solve for all of that upfront, we just have to have enough clarity, so that the principles are clear and I would assume, and I don’t know the French system and this is hypothetical, but I would assume that given all the number of pharmaceutical companies that operate in France, that there’s enough clarity there for what is supposed to be done and how, and that if they’re not following that standard within Próspera, that it’s going to be clear, because that’s law is public, it’s open and it’s transparent. When somebody, if somebody is hurt, let’s say by a pharmaceutical company, manufacturing within a Próspera hub, that did not do the level of inspection before the drugs went out the door, for example. Again all this hypothetical.
In France, they should have done step one, two and three. That’s the thing that we don’t have to say exactly, but a judge will come and look and say, “Well, what’s the standard again? What do they do in France? You get technical experts, expert witnesses.” Then a case gets built and the judge looks at it and makes a determination. It was important for us that we started with at least one bench of judges that were world-class and understand the Próspera system. Dispute resolution is you can do choice of law and you can do choice of dispute resolution.
You want to go with say, AAA in the United States or the London Arbitration Center, that’s fine too. The point is they’re going to ultimately look at the facts and make a decision as to whether or not you followed the letter and the spirit of the regime that you say you’re going to follow. All along with a third-party insurance company that is backing that as a third-party on the hook of potentially whatever liability that operator is exposed to. Before it gets to the court, because you say, okay fine, they commit something horrible. Somebody is hurt. It’s a little too late. In some ways, it would be. Before it ever gets to the court, you have this private oversight with the third party that’s on the hook, that if this company doesn’t follow the French system and is ultimately deemed to be in violation, the insurance company is the one’s going to have to pay the damage, or at least a significant part of the damage. There’s a minimum by statute that they have to cover. That is supposed to work as before damage is done, a private contractual relationship of what they’re going to do to, in fact, comply with the say, French case in this particular scenario. Does that answer your question?
Mark: Yeah, I think that does. You talked about the Próspera Arbitration Council. Let’s go a little bit more in depth onto that. How does that function? What services does it provide? If you are a resident, or business in Próspera, what are the advantages of choosing the Próspera arbitration council over other arbitration services?
Erick: Okay. It’s the Arbitration Center, the Próspera Arbitration Center.
Mark: Arbitration Center. Okay. Sorry about that.
Erick: No. No problem. Let me back up for a second and point to some differences between the Próspera Arbitration Center and a typical arbitration center, because then it goes to answer the question of what are the advantages. Typically, an arbitration center is providing arbitration services that tend to be private, confidential, and about resolving commercial disputes primarily. The Próspera Arbitration Center on the other hand, is there to do more than that. It’s in fact by default, open and public and its resolutions are presidential. If they’re open in public, they set precedent to help evolve the Próspera legal system.
The judges are all trained in common law case handling, so the rules of evidence and the rules of procedure are much more aligned with what you would expect in a public court than what you would in a private arbitration center, where it varies quite a bit. In any case, they’re private by default. The Próspera Arbitration Center, we call it the PAC. The PAC is by default, public. It’s open. It’s following the rules of evidence and procedure that are at the highest levels with the public court, because the decisions being made will set precedent, they’re available and that is precisely a feature to help the dynamic of common law serve not just the evolution of the Roatán common law code, but also the evolution of the regulatory system.
When the first case gets resolved, for example, not just of a French company following the French system, but any company following any other system, that resolution will be public and will set a precedent, that then everybody else can look at and say okay, that’s the framework, the legal framework. Just as you do in Delaware today when judges make decisions.
The second important thing is that they’re not just dealing with pure commercial matters. Of course, that’s going to be the core of it, but they’re able to resolve issues of labor disputes, hazardous materials disputes. We’ve even created a criminal equivalent through instead of going to jail, you pay a fee. There’s a criminal set of fees. There are fees for criminal-ish actions that can be resolved in the first instance with the arbitration center, so that your only solution is not to throw someone in jail. If you have a break-in, trespassing of private property, that would generally be a criminal offense and the only thing you can do is go down that route.
In Próspera, you have a monetary, a civil solution for a criminal problem. On the website, you can see all these. Ultimately, what is the benefit? The benefit is that you have a low-cost, high-quality mechanism to access justice that is public, is precedential and that already understands the Próspera legal system, which again, it’s largely common law, so it’s not very unique to just Próspera. It’s an international best practice.
Now, it is there as a default service provider. If the parties do not select an alternative, then the PAC applies, just like you would say, in a court. Even today in the United States, you and I can enter into a contract. If we don’t say anything about how we’re going to resolve the disputes, then generally, I guess, we would have DC or Maryland have jurisdiction. We have a dispute, the Maryland courts or the DC courts have jurisdiction. Or we could say in the event of a dispute, we’re going to go to the arbitration center.
In Próspera, the default is the Próspera Arbitration Center, but you can also opt out and say some other system. Here’s where it’s related to it, but where I think we’ve inserted a key innovation. If you have a dispute of a public nature in Maryland, you have no opt-out of the public court system. I mean, you’re stuck with the Maryland courts and then the district courts and then eventually you go up to the supreme court. All of those are part of a state. The court system is part of the state. I mean, you have division, I mean, different branches of government, but they’re all part of the same monolithic state structure. As a company, or as an individual, or as an interest group, you’re stuck in that.
In Próspera, we wanted to create an opt-out of that. Well, first of all, we’re not a state, but we could have had a situation that’s very similar where you end up with the arbitration center, because that’s the mechanism of last resort. Here, whenever you have a dispute as a resident, individual, or legal entity against a Próspera-related entity, even if the dispute resolution mechanism was by contract, the PAC, when there’s a dispute, the parties have a window of time, the non-Próspera parties have a window of time in which they can choose to opt out of the PAC and go automatically to an international arbitration center. In our case, the default is the AAA, but over time we’ll add more.
That as private parties with each other, you have it as a default. As private parties against a Próspera-related entity, which is public-private, you have the PAC as a default, but you can opt out at the last minute, even if you didn’t do it contractually. Yeah, so anyways, those are some of the key features.
I would say further that building on what the Dubai International Financial Center Courts did, they have super high-power judges and lawyers for big cases, but then they have frontline arbiters of sorts. I think they call them judicial officers, where they resolve lesser matters very quickly. We have a similar structure. In fact, a lot of these instances are going to be dealt through mediation, so that they don’t even have to be a full arbitration case, as long as the parties agree. It would be voluntary. Following the example of Dubai, often if you hear from in their case, the judicial officer that says, “Look, we should mediate this. I’m not giving you the final resolution. However, I am an expert in how the arbiters are likely to decide. My opinion is that you’re likely to lose and you’re likely to win.” That generally gets the parties to agree on something relatively quickly.
That way in Honduras, one of the big things that we think is going to be of value to the residents is the Labor Tribunal of the PAC, which has effectively a guaranteed resolution within 30 days. That one is built upon the Singapore model. In Honduras, when you have an employer-employee dispute, it takes forever to resolve. Generally, the employees are the ones that feel that they were at the raw end of that deal for no other reason, because it took forever. In our case, it’s guaranteed to be solved in 30 days.
It’s not always going to go the way of the employer, but building on what Lee Kuan Yew, or Singapore did, we think that it’s of more value for it to be fair, transparent and fast, as opposed to certainly for it to be one-sided, or worse for these things to drag on forever and not be resolved.
Mark: What’s the role of the Próspera Council?
Erick: The Próspera council, you can think of it as similar to a city council. You have a city, the city council is the ultimate decision-making body when it comes to rule setting. In the case of Próspera, it has a couple of additional layers that make us a big difference from an institutional perspective.
First of all, the council has nine seats. Those nine seats are shared between nominees by the promoter and organizer. It’s a private and for-profit enterprise, which is basically creating the whole platform, and elected members by residents of Próspera. Over time, the majority of the council will be elected by residents, five out of the nine members. In the beginning when there aren’t that many residents, it’s a combination between four seats nominated by the promoter and organizer, two seats nominated by landowners. Then the balance elected by the residents, or selected by the residents.
Yeah. I mean, that’s the council. It’s a rule-making body. It is balanced in its composition. Ultimately, it’s a majority selected by the residents through a similar electoral process as you would expect in a typical democratic election. I guess, what the council is not, the council is not a bureaucracy, or intended to run the day-to-day operations of Próspera. They’re not in a city council, they’re not necessarily – there’s not an executive branch that then is hiring all the city employees that are carrying out the services.
They’re there to do rule setting and provide oversight and following the Sandy Spring models that Oliver Porter developed, which is on our board and on the council. The council is basically overseeing a number of contracts that are issued for the delivery of frontline services, whether it is basic administration, or security, or trash collection, etc.
Mark: What is the general service provider and how does it relate to the council?
Erick: Well, the general service provider is basically the main contractor of the council. It’s a subsidiary of the promoter and organizer set up as a general contractor, which is then now going to market and soliciting bids from various service providers for categories and specializations within the portfolio services that make up the – well, the general services that you would expect from a municipal type corporation. You can think of it as a general contractor that is overseen by the council, but that has delegated authority to make hiring and firing decisions for the delivery of services on the ground.
Mark: Right. What is the agreement of coexistence?
Erick: It’s a contract. It’s the closest thing to a social contract actually being a real contract. It lays out the core principles upon which a resident is expected to perform, and on the flip side, what Próspera is expected to deliver. It’s a contract of service for services and of standards, it lays out not only the rules, but the way in which disputes are going to be resolved and the remedy that the parties have. You must sign it in order to be a legal resident within a Próspera hub. Yeah, it’s a contract.
What that means, Mark, amongst other things, it’s not just a nice thing to have a piece of paper signed and finally have a social contract that’s a real contract in this case. It gives legal standing to both parties in the same way. It brings the provider of services, in the case of Próspera, to the exact same level as a resident, because this is a contractual relationship. If there is a breach of contract, including Próspera not following its own charter, or standards, or delivering services as it promises, then the resident is a contractual party that can sue Próspera in the AAA and have the case resolved in the AAA of the United States if it doesn’t want it resolved in the arbitration center. Próspera has a holding company that is a U.S. firm, so it’s completely exposed to the reach of enforcement at the highest level of the force of law.
Mark: Great. Walk us through, what does it take to register a business in Próspera?
Erick: That’s probably best done online. There’s a guide online and it’s fairly simple. I won’t go through the steps, but we believe we are very, very efficient, certainly compared even to the United States. It’s not necessarily cheaper across the board, but it is a lot more efficient and over time, it will be cheaper.
Mark: Great. Let’s move on from the legal system. One of the key challenges in building a charter city is ensuring that there is support from the local population. We’ve talked about the Honduran government generally and we’ve talked a little bit about Roatan, but have you gone about building relationships with the Roatan population ensuring that they understand the benefits that Próspera can burn?
Erick: That is a very important dimension often overlooked. When you talk about the Roatán community and population, it’s a relatively small island, but it’s a complex society just like any others. In our case, we have a local village that we decided to partner with and be neighbors to. Then you have the broader Roatán population, but then you can divide that amongst the political leadership, the business leadership, the civil society leadership, youth activists. What we have attempted to do is from an early, early on, even when we were deciding on what land to buy, we had several options; one of them had as a feature in my book, a local village, native village to the island, mostly English-speaking. We wanted to get a feel for that community and what their needs were, what their culture was.
Before we did anything else and for over a year and a half, we had a number of programs, empowerment programs and social impact programs ranging from empowerment funding of providing capital to small entrepreneurs, mostly women-led businesses to creating a workshop where it’s like a tech shop, but with much more basic machines that villagers could use to create artisan artifacts to sell to the tourists, to a small village school, to a water utility company. We’ve expanded our activities, but it’s all about getting to know the community, understanding their needs and then planning for ensuring that they have access to opportunity, in a very proactive way, I might add.
Not just through a trickle-down economics mentality that look, if we create wealth next door, eventually it will trickle down to them. Rather, what are these people capable of doing right now that benefits the project and them in the process. We’ve got a gamut from construction workers, to artists, to the kids themselves going to school. I think it will take a generation before they can be productive members of society, but still, it does make a difference to have a young teenager today learning better English and better math for what he or she will become in a broader sense.
We’ve invested in having an intimate relationship with that village. I know a lot of them personally by name. We have a team on the ground that is handing love, working with them in some areas. It helps that our technical secretary, or the maximum legal official within the Honduran structure is from the island, born and raised. Tristan Monterroso is his name. He has a very intimate understanding of the community at large. He was the president of the Pastors Association for the whole of the Bay Islands. Meaning, that he was very active and knowledgeable about the community that we’re operating with, but then the community at large.
It’s funny, whenever I go down there and I’m with him, people just know him. Everybody knows him. Not in a celebrity sense, but in a way that I want to give you a hug sense. This is a very loving man. He’s a big guy. Not height, but strong. Yet, people come to him and just really appreciate the work he’s done. He prays at the prison with prisoners. Anyway, nothing beats having a partner on the ground that has invested most of his life in understanding the local context.
Then beyond that, you got the political leadership and the business leadership. This might sound a bit more transactional, but in the end, it’s absolutely important to ensure that you have enough of these individuals that know the local realities, be vested in the success of the project. That takes different forms. In some cases, it can be they are an investor as it’s the case. In other instances, it’s them providing, being one of the service providers within the jurisdiction in the realm that they’re experts in, let’s say telecommunications as an example.
The point is though that it’s unrealistic, impractical and counterproductive to imagine that you’re going to create an oasis of prosperity, where you’re not proactively including the local population. That’s going to happen eventually. We’ve been doing it at the forefront at every level; the grassroots, grass tops, treetops, leadership and what have you. That’s heavily focused in Roatán for the time being. As we expand into La Ceiba, I think we’ll copy the same model. It’s proven to be very successful so far.
Mark: We’ve talked a lot about the legal infrastructure for Próspera, but the other core component is the built environment, the physical infrastructure for the city. How have you approached that generally? How have you approached ensuring easy access to commutes, ensuring the proper use of land, zoning and land use regulations, as well as the physical infrastructure itself, ensuring there’s reliable water, or electricity? Then on top of that, you have partnered with Zaha Hadid, who is one of the best-known architects for urban planning architecture firms in the world. To start, before going into a little bit more detail, let’s just have a high-level overview of how you approach thinking about these challenges.
Erick: Sure. At the highest level, Mark, we’ve got a framework that points to the built environment, necessarily being flexible, profitable from the beginning. By flexible, I mean, responsive. I mean, we have some industries that we are prioritizing and seem to make sense in the beginning, but the reality is that we don’t know with absolute certainty what’s going to emerge here in the next 10 years. The built environment has to provide flexibility, and has to be scalable. In Roatán in particular, we’re very sensitive to the environment. Ideally, it’s very green and integrated with nature.
Importantly, it needs to be able to cater to various layers of the socioeconomic ladder. It can’t be just high-end residential, or high-end offices. It has to be from the high-end, sure, but also accessible to the very local population. I mean, very, very local as in the village next door local, which is not a wealthy village at all. It’s a relatively poor village.
It has to fill the spectrum and then be all the other things. Obviously, we’ve looked at the more standard latest thinking of walkability and neighborhoods have to have proximity to not only live, but work and play and public spaces. I mean, these things are embedded. They’re not what I spend most of my time personally thinking about. That’s why we’ve partnered with world-class organizations that know much more than I’ll ever myself.
In Roatán, obviously we’re creating a physically, a built-out environment where you want to be connected to nature, have access to technology, not only services, but also beautiful physical location, where you can go to the park, go to the beach. You look at your home from the outside and it just looks great. You asked about Zaha Hadid and that particular firm. Indeed, they are one of the very best. The area where they are adding the most value outside of just the aesthetic design, which is very unique to them, I would say that the most exciting dimension that they’re contributing to is they’ve designed for us a supply chain. Not just an end-product that shows up as one of our first residential solutions. It’s a whole supply chain integration, which seeks to leverage primarily locally sourced sustainable timber, with the local labor force given their skill sets, while preserving and being able to deliver as a product beautifully designed modern and technologically integrated solutions.
To bridge that gap, there are virtual to digital fabrication components to this that combine the best of what modular construction has to offer in a traditional sense. The negative side of that is you got cookie-cut, boxy solutions. It gets rid of that and combines it with digital fabrication, so that you can have the very customized end-product. You get the best of low-cost mass production, with beauty and functionality of customized end-product, while integrating the local supply chain and local labor force. I would say that that’s by far the most valuable contribution that Zaha has done for us.
That model we seek to replicate in everything else that gets built, which on an island, but in general, the construction industry has several opportunities for improvement. The least of which is the time to actually construct buildings. It’s quite a while. With this approach, we shortened that period of time, almost by a factor of three, while being able to produce at a lower cost and I would argue, in a much more modern and beautiful results.
Mark: Previously, you’ve spoken about long-term becoming a financial hub, becoming Hong Kong to mainland Honduras as Shenzhen. What does this look like in a more short-term context? What industries do you target? What industries do you bring? How do you develop the core economic locus of Próspera?
Erick: Yeah. If you had asked me this as early, or as recently as January, I would have told you that our core industry was medical, tourism. COVID obviously has, let’s say, disrupted that industry quite a bit, not only because of travel, but the medical space in particular has been rather overtaken by this. I do believe that medical, tourism and innovation is going to be a core industry, but in the immediate term we have pivoted more to just the general knowledge economy. Human cloud services, if you will.
What we are pivoting towards right now in the built-out environment that we’re constructing for is for young Honduran professionals and entrepreneurs to be based out of Próspera and be able to from there, have jobs anywhere in the world. There’s a layer of service associated with that, which is sourcing and structuring their job with an American and European firm, so as to be of the lowest friction possible to the employer. So that for them, it feels like just having another employee, they just happen to be remote.
The types of jobs are in the knowledge economy, the types of jobs that you can do remote, whether it’s accounting, or architecture, or graphic design, or software development. We’ve pivoted towards that as a starting niche. It’s somewhat diversified in the sense that what’s similar about the jobs is that they can be done remotely. Primarily, that’s the core requirement, but the industry can be quite varied.
What we’re finding is that the early adopters of this are coming on with more than just dollars and cents as their motivation. Yes, of course, it’s great that you can have an accountant knowing gap standards for a third of the cost as you would have in the US, a huge selling point. By the way, if there’s ever been a time to do this, it’s now, because the positive side, I guess, of COVID is that remote work is now, by necessity, quite acceptable. Whereas seven months ago, it was a bigger push.
Yes, of course. They want an accountant that’s going to do high-quality work for a third the price, but I think most of the early adopters have more than that as a motivation. I think that they understand what we’re seeking to create and whether it is on the social impact side of things, or whether it is ideologically motivated. We know that there is an early adopter subsidy of sorts that comes from the non-just economic means. They want to be part of unleashing this platform onto the world, this methodology. In the process, they are benefiting. It’s not a charity. They’re getting labor that is of quality for a fraction of the cost.
For the Honduran side, what this means is young professionals and entrepreneurs being basically the seed population that is moving here for a young professional Honduran in San Pedro, or Tegucigalpa, or anywhere, having the opportunity to move to Roatán to a development like the one we’re creating is a huge upgrade. Comparatively speaking, it’s people go to Roatán whenever they can as a great opportunity for vacationing. To live in a paradise like Roatán is in relative terms — is a huge upgrade.
We’re getting a lot of excitement by a group of Hondurans that I think represent the best of what Honduras has to offer. With that, Mark, you start to layer a foundation of human talent and resources that is necessary for knowledge industries and service industries, like banking and insurance and consulting and lawyers and family offices and all these sorts of things that would have been the early stage of the Hong Kong equivalent. We start with human cloud and then that’s a thin layer to build upon all these other things that are necessary.
Mark: Great. We’ve got a few minutes left. Sell us on the 30-year vision of Próspera.
Erick: Well, 30 years from now, it’s 2050, right? Próspera 30 years from now is a network of distributed prosperity hubs around the world, sharing some common software and services, so that they all have a base level of quality and standards, everywhere from human rights, to security and justice and what have you. That’s at the most abstract of senses.
I would say that having a multi-million strong population in a distributed sense of people in places, where otherwise they would not have been able to even get close to their potential, performing at close to, or above their potential is a dream come true. Multi-million strong distributed population close to their families and where they choose to live has a tremendous level of importance. This location of populations causes tremendous harm, refugees and what have you. People can stay at home with families where they were born and still do great. It’s a huge value.
That’s way out there and it’s very abstract, because it’s hard for me right now to tell you that the hubs are going to be in X countries around the world. What I can tell you is that this first instance of deploying this in Honduras, in partnership with the government of Honduras and the people of Honduras, 30 years from now will look very similar, but on a smaller scale to Hong Kong, Shenzhen. From there, we hope to have two or three additional hubs running on the Próspera platform, within mainland Honduras.
You would imagine that the aggregate population is probably just shy of a million, a million and a half people, 30 years from now. Honduras is a 9 million strong population now, so somewhere in the 7% to 12% of the aggregate population would be an aspirational, but I think achievable market share of the Honduran population benefiting from Próspera governance services and beyond. Yeah. I mean, that’s a high-level division as a company. What we seek to create is to inject the best of market dynamics, competition and innovation into the provision of these critical services, typically referred to as governance services. Eventually, this matures into being a publicly traded company, where shareholders can provide capital to make this reality underground, but also benefit from the efficient provision of these services with the same type of self-correcting dynamics that you see in companies.
In our case though, there’s a fundamental innovation in business model, which is as a socio-economic development organization, the way in which Próspera ultimately captures and internalizes wealth is by creating generalized prosperity. It does so by creating general conditions. The more people that are within the network of hubs and they’re better off that they’re doing, the better shareholders will be.
Therefore, the financial market incentive from the shareholder base all the way down is to create and keep and propel the conditions that maximize generally prosperity. Then that is not a libertarian, or socialist, capitalist, it’s not a political ideology. It is about the empirical facts of the right balance between some rules, liberty, and so that as a human society on average, people can be better off. What I’m trying to do, what we’re trying to do as a group is connect the best of civil society, of public mentality when it comes to human rights and the environment protecting these issues of collective action, but inserting into it the tremendous benefit of competition and market dynamics that clearly work in a certain way, where in other words and you’re an economist, we’re internalizing the positive externalities of good governance in a structure that I think keeps it all within one roof, so as to make it financially viable.
Mark: Right. Lastly, are there any questions that I should have asked but didn’t ask?
Erick: I would say, maybe something about why in general and why now. Why is this necessary in general and why is now a good time in the world as is?
Mark: All right. I’m asking those questions now.
Erick: Well, look. I would say that why in general is that the world as a whole has gotten much better, almost by every measure. I know it doesn’t necessarily feel that way when you see catastrophes and wars. If you zoom out, the world has gone a lot better. However, there’s still a very significant portion of the population that is in dire conditions. As better as the world has gotten, we don’t know how much better it could have been, if the types of drivers that have propelled that generalized prosperity would have been more powerfully injected and sustained. A lot of the countries that were at the source of this generalized prosperity are deteriorating, governance institutions are becoming corrupt, more centralized, etc.
In general, we can do a heck of a lot better and we can build on top of what we know works for the past 500 years there have been, perhaps a 1,000 magna carta could be one of the first starting points. Certainly over the past several 100 years, we have seen how different forms of governments work, how institutions make such a big difference. You asked about this earlier.
We know a lot more now than we did 300 years ago. We have an opportunity, now that we’ve seen that various degrees of this institutional structure works, to leapfrog and not only deliver it as a service in parts of the world that desperately need it, but inject it into parts of the world that are doing fine and can actually propel us even further into the world of innovation and wealth creation and what have you. That’s as a general statement.
Why now as opposed to say, 10 years from now, or 10 years ago, you can see cracks in the system now more than ever. Whether it is in first-world countries, superpowers, or in emerging superpowers that have a lot of strength, but they can be scary in some ways in terms of their principles and values. I think right now where we have an emerging generation of people who are very committed to trying to drive change, social change, protect the environment, whatever, this is almost an innate need of an emerging population.
They’re after change. We better have something for them that is constructive. We better create an option for change and transformation that is built on empirical evidence to work and to lift people up, as opposed to repeat the catastrophe of history of centralized power and tyranny and dictatorships. Right now is important, because it’s when it’s needed and we have a generational change. I think that by proving this model out just a couple of times, it will become a new standard of performance that you look back on and you wonder why the heck did we ever do it differently.
Just like today, people generally accept that democracy and public institutions that are not a king, make sense. I think within our lifetime, Mark, and certainly we both seem to be committed to that. People look back to it and say, “Wow. Whoever thought about doing this differently?” I think the time is right.
Mark: Great. Thanks. Thanks for coming on the show.
Erick: You’re welcome. Thank you.
Mark: Thank you for listening to the Charter Cities Podcast. For more information about this episode and our guest, to subscribe to the show, or to connect with the Charter Cities Institute, please visit chartercitiesinstitute.org. Follow us on social media @CCIdotCity on Twitter and Charter Cities Institute on Facebook. I’m your host, Mark Lutter and thank you for listening to the Charter Cities Podcast.
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