Charter Cities Institute Founder and Chairman Mark Lutter returns to the podcast to share his perspective on network states, charter city trends, and more. Mark is also the CEO of Braavos Cities, a charter city development company partnering with local landowners and a leading organizer of Zuzalu, a new pop-up city in Montenegro. Tune in today to hear Mark’s insights on existing network states and why they have either succeeded or failed. You’ll also learn about some of the challenges associated with attracting appropriate talent to cities in order to facilitate growth. Mark shares his experience at Zuzalu and describes the flat hierarchical structure that was made possible there. Using the metaphor of gardening instead of carpentry, Mark illustrates his unique approach to building network cities. Hear how Mark differs from others in the charter city space on the matter of location and his analysis of the global response to the 2020 COVID-19 pandemic. As our episode draws to a close, Mark reveals his thoughts on restarting struggling economies, finding buy-in from local government, and more. Thanks for listening!
Key Points From This Episode:
- An introduction to today’s episode with CCI Founder and Chairman Mark Lutter.
- What Zuzali is and how it came together with reference to Vitalik Buterin and Balaji Srinivasan.
- Defining the terms ‘pop up city’, ‘pop up village’, and ‘network state’.
- How the historical failures of network-type states influence Mark’s feelings.
- Examining the examples of Israel, Utah, Salt Lake City, and Jonestown.
- Considering why San Francisco is especially susceptible to cults.
- Why Mark returned from Montenegro and Zuzalu with optimism for network states.
- How the internet can behave as a giant sorting mechanism.
- His predictions for how sorting mechanisms will change in the future.
- The problem of attracting appropriate talent to cities.
- Why Montenegro was the chosen location for Zuzalu.
- Building Zuzalu whilst building local relationships.
- The role of the host government in the success of Zuzalu.
- Where the name Zuzalu came from.
- Flat status hierarchies in network cities and other agglomerates.
- How they managed to sustain a flat hierarchy at Zuzalu.
- What it means to think like a gardener and not a carpenter.
- What Braavos Cities is and what it aims to do.
- Where Mark differs from other folks in the charter city space on the matter of location.
- Two migration patterns to tap into.
- The greatest successes of the COVID-19 pandemic and what could have been adopted instead.
- Distinguishing between Charter Cities Institute and Braavos Cities.
- Restarting an economy through leveraging comparative advantage.
- Getting buy-in from local government.
- Job creation and investment.
- The Zanzibar project that Mark is excited about at the moment.
“I came back from Montenegro and Zuzalu much more optimistic about network states. Maybe not the Balaji-specific idea, but a more broad idea of what network states could mean and could do.” — @MarkLutter [0:11:34]
“We’re going to see those sorting mechanisms continue to increase where people are sorting not by income and class as they have historically, but to some extent, based on some set of shared interests and shared activities.” — @MarkLutter [0:14:34]
“If it is a more permanent community that you want to build, then it is critically important to engage the locals.” — @MarkLutter [0:21:23]
“A lot of charter city and related projects fail, because they don’t take seriously local engagement, because there’s tension between the local community, and the city residents.” — @MarkLutter [0:21:25]
“Look at any kind of new space, new industry. It’s never validated until there’s a big public win.” — @MarkLutter [0:40:01]
“The key to jumpstarting any economy is figuring out what there is a comparative advantage in.” — @MarkLutter [0:42:29]
Links Mentioned in Today’s Episode:
Kurtis: Welcome to the Charter Cities Podcast. I’m Kurtis Lockhart. On each episode, we invite a leading expert to discuss key trends in global development in the world of cities, including the role of charter cities and innovative governance will play in humanity’s new urban age.
For more information, please follow us on social media, or visit chartercitiesinstitute.org.
Kurtis: Today on the podcast, we have CCI’s founder, Mark Lutter, back on the show. Mark is chairman and founder of the Charter Cities Institute. He’s now CEO of Braavos Cities, a charter city development company that’s working on a new city project in the Caribbean. He’s returning on the podcast to chat about his experience as one of the organizers of Zuzalu, a new pop-up city, and the corresponding cast of characters, networks, and community builders that together make a cluster of people like Zuzalu so special. We also chat a bit about network states and about trends in the charter city space more generally. I hope you enjoyed the episode.
Kurtis: Hello, Mark, welcome back to the podcast, sir.
Mark: Thanks for having me. That was a very cheesy intro line, Kurtis.
Kurtis: Okay. We have to take this seriously. We’ve been given orders from our comms head to take this seriously and not screw around. So, come on. You got to get into a podcast persona.
Mark: I am in podcast persona right now. I assume that this is going to be published.
Kurtis: Okay. We’re going to chat about a lot. We’re going to chat about charter cities and new cities. We’re going to chat about network states and trends in this space about your specific charter city project. But first, I think a good place to start is just to ask pretty plainly, what the hell is Zuzalu?
Mark: Zuzalu was an experiment, a pop-up village, sometimes called a pop-up city in Montenegro, over a two-month period. It was organized by Vitalik Buterin, and I organized one of these sub-events, which was the new cities and network states sub-event. I think, the idea is Vitalik was a little bit inspired by Balaji’s idea of network states, but also had kind of disagreements with Balaji over what the best form of network state was. So, Balaji advocated a model where you had a very strong leader, a single cause area, with the ultimate goal being to negotiate for sovereignty.
Vitalik thought, “Okay, well, you don’t need a single leader. You can have a community. You don’t need a single cause area, you can have kind of a set of overlapping interests. You don’t need to negotiate for sovereignty. Instead, you can work with governments to help them do better stuff.” The other kind of framing that I thought was quite interesting was you can think of different types of human organization on two different scales. One is the time and the other is the number of people. Some organizations have a very small number of people for a very short time period. That might be, for example, a dinner party. You’re together for an hour or two, and it’s 10 people.
On the other hand, you’ve got some types of human organizations that are very long-lived and have a lot of people that might be a country. The US has 300 some million people. We’ve existed for almost 250 years. So, this is Vitalik trying to create something with the intermediate number of people just above Dunbar’s number, with also an intermediate timeframe, of two months. The conference might be a high number of people, but only for a few days, at most a week. A hacker house is a small number of people, but maybe for a year. So, what is this kind of intermediate form of human organization? What does it look like? That is what Zuzalu is.
Kurtis: You called Zuzalu a pop-up city, and we have a lot of different terms flying around here. Charter city, network state, pop-up city. Can you just elaborate a little on these terms? What are their similarities? What are their differences and so forth?
Mark: Sure. So, I called it a pop-up village. Some other people have called it a pop-up city. Because it only had 200 people, I think pop-up village is slightly more accurate. When I think about a city, I think about the number of people. Cities are to a certain extent defined by like agglomerations of people in a specific place and time, and that requires sufficient numbers. A charter city, I think of, as a city with a separate legal system from the rest of the country. This means that it has some degree of authority to make some set of laws that otherwise are typically reserved for the national government. The classic example of this is Hong Kong, which until kind of recently, it was one country, two systems. Hong Kong is governed by common law, the rest of China, is not. It had a substantial degree of local self-governance. Then, China recently cracked down substantially.
A network state is a term that Balaji came up with recently. I think you would probably find this unacceptable framing. But he framed it as a successor to the nation state. Thinking about how Internet communities then instantiate in real life can develop sets of social bonds and negotiate with countries for sovereignty, to be able to live in ways that they want to live. That is what a network state is.
Kurtis: There are a lot of obstacles to actually getting a network state off the ground. If you look to history, people tend to be pretty firMarky rooted, and people like Tyler Cowen suggest there’s even less mobility and willingness to move in recent times. COVID may have slightly changed that a bit. So, just take the long view, the historical view. Does the history of attempted network state type initiatives make you pessimistic or optimistic about its feasibility today?
Mark: Generally, pessimistic. If you look at the example of Balaji, he said a successful network state is Israel. It’s like, okay, look, if you have a religion that’s multiple thousands of years old, and you’re facing literal genocide, and you have the backing of, at the time, the world’s superpower, the United Kingdom, then yes, you might be able to migrate to an ancestral homeland and take control of it and create your own nation states.
Kurtis: But like that almost didn’t even pan out, right?
Mark: Yes. It was really, really, really hard. An example that I think shows a little bit of higher degrees of ease, is Utah or Salt Lake City, where the Mormons settled in the 1850s. But the Mormons only became a religion in like the late 1820s. So, it’s basically less than 30 years from new religion, to settling to what is now a pretty nice city.
There were some similarities kind of a very strong social bond. It happened during, oh, man, my history is bad here. I think that was the Second Great Awakening in the US. It was a time of great religious fervor, and the Mormons happened to take it a bit further than most other folks. There was heavy persecution because the Mormons adopted a set of social values, including polygamy that were not very well received by the rest of society. Joseph Smith was murdered in, I think, Missouri, in part because of this conflict. So, you have the degree of oppression, broadly defined, that causes mass migration, and then you have religion that coordinates that mass migration to a specific place.
What is arguably the most successful network state over the last 50 years is Jonestown.
Kurtis: How is that arguably successful?
Mark: A thousand people moved to the middle of the Guyana jungle. What happened after that is worse, we can elude over, but I think it demonstrates the challenge is to have mass migration, you need very strong social bonds, and very frequently, those strong social bonds often create the opportunity for bad actors to take advantage of them. Just because, they’re by definition, strong internally coherent social bonds, mean weak social bonds with the rest of society that allows predators to come and take advantage. And Jonestown did successfully negotiate with the government, move a thousand people to take over a part of the jungle. They even had an airstrip there. It was just that the guy leading it was very abusive, and arguably insane and ended up killing slash suiciding everybody after six months living there.
Kurtis: That’s interesting. So, this is kind of an adjacent point. But I hadn’t thought of this before. I think the Jonestown Cult originated in San Francisco, right?
Mark: Sort of. The guy was actually like a 1950s civil rights leader, I believe in Indiana, maybe Illinois, then they moved first to Northern California. I don’t think they ever were fully in San Francisco. I think their headquarters were always north of San Francisco, but they were kind of heavily integrated. There are accusations that they help steal a mayoral election in SF. They were pretty well integrated into the San Francisco and even California power structures. They were quite influential there.
Kurtis: That’s interesting because I’ve lived in and been to a lot of major cities in the US and in Canada and elsewhere. San Francisco, it strikes me has like a much greater history of spinning out some of these utopian cults than other places. What would you say is in the air in San Francisco that creates this dynamic?
Mark: Yeah, it might be a little bit more in the paper than in the air. That’s an LSD joke. I don’t know. Definitely relates to like all of the sixties, the hippies, the sexual revolution that was very heavily concentrated in San Francisco as to why it was concentrated there as opposed to other places. I don’t know if there was a history of cults before then. San Francisco used to be a heavily Irish/Polish Catholic town and it really changed in the sixties and why they concentrated there might have been good weather. It might have been some degree of romanticism where population centers might have been still dominantly Midwest and east coast. So, this was the obvious escape was California. It’s more walkable than LA. So, maybe they chose it for that reason.
I don’t have a clear understanding of why it happened. But then since the kind of late sixties, there has been this legacy of cults of very strong, weird social networks, and social movements, that I think have had a good track record for good. I mean, effective altruism, for example, is heavily influenced by SF, and by some of the social scene in SF. The rationality community is very SF dependent, and that – well, it could be very bad if AI kills everybody, but it also could be very good if AI helps everybody. So, at a minimum, it’s very influential. At the same time, anybody who spent some modicum of time in SF will hear stories about cult or cult like phenomenon, tales of sexual abuse, things that obviously exists in all cities, but like the nature and phenomenon in which it exists in San Francisco, I think is relatively unique just because of this like legacy of cults, and this legacy of these unusual social structures.
Kurtis: Okay, let’s tie this loop before moving to the next question. You were talking about how Jonestown is arguably the most successful modern network state, and you are tying that into your pessimism about the feasibility of its implementation today. So, finish that thought.
Mark: Yes. You asked me based on the history of network states, what does that tell me today? I think history is definitely one angle to look, but you can also look at how social structures are changing. I came back from Montenegro and Zuzalu much more optimistic about network states. Maybe not the Balaji-specific idea, but a more broad idea of what network states could mean and could do. I think one way to frame this is thinking about the internet as a giant sorting mechanism.
It has allowed people to find their tribe or whatever it is to identify people with shared values and shared interests much more effectively than before. You see this on forums, where previously, you’d have like, nerd in a small town, has no friends, and now they can find nerds in all the other small towns and share a set of interests. In San Francisco probably the last 10 to 15 years, it says instantiated in real life. I think now what we’re seeing, which was helped by the COVID shock, is that these communities are now instantiating themselves in real life in a lot of other places and contexts as well.
So, Zuzalu, to a certain extent, was an instantiation of particular communities that had some real-life component, but also, of pretty heavy online component that were instantiated IRLs in Montenegro for two months. So, as you see this, I think sorting mechanism take place, you also are seeing to a certain extent, the lowering of transaction costs, where now you’re able to coordinate with a large group of people much more effectively, where you can have, everybody can easily post like. I bought a ticket to X place. I rented a house in Y place for two months, and everybody can see that, and that serves as a kind of social proof mechanism, in a way that’s much lower friction than like, “Okay, I need to call everybody to trust me, when I say I bought the ticket, or I can photocopy it and send like mail to everybody, right? That’s just a giant headache.”
But the Internet, as well as some other technology is greatly lowering the friction for coordinating spontaneous action, social action. We saw this 10, 15 years ago with these flash mobs where it’s like really cool. “Oh, we’ll have 50 people show up and do a funny dance. Everybody will be confused. What’s going on?”
Kurtis: Pokémon GO, a little bit.
Mark: Yes, Pokémon GO, and that was two different short-lived instantiations of this transaction cost lowering friction, and now we’re seeing that work on a more interesting social level. So, I guess to answer your question, do I think we are going to get groups of people led by a charismatic leader around a single goal, go and negotiate with a government for sovereignty, and lead to mass migration of followers to that place? No, that seems very unlikely. Are we going to see different communities begin to sort themselves in existing cities where you might have in some neighborhood, you get a bunch of people who are interested in X move to that neighborhood. Yes, we are already seeing that.
One example is the neighborhood in San Francisco, where it’s a self-conscious effort to just get a bunch of people who live in a one square mile radius. Everybody can have that social network accessible and available to them. I think we’re going to see those sorting mechanisms continue to increase where people are sorting not by income and class as they have historically, but to some extent, based on some set of shared interests and shared activities in a way that’s relatively new and unique.
Kurtis: This is kind of related to where you ended off there. So, one of the core factors that determines the success or failure of cities over time that underlies the flourishing or not of cities, is a city’s ability to attract talent. But this is often a chicken and egg problem. To you, what pieces of a city, what different forms of agglomeration are most important in attracting and then retaining talent?
Mark: Yes. So, I think what was interesting in Montenegro was, for the two months of its existence, it might have had, I don’t know, one of the 100th highest talent concentrations in the world. We’re seeing kind of talent agglomerate in new and interesting ways that previously were not thought about very much. I think historically, people think about talent as like, okay, we can think about country level, or we can think about city level, or we can think about firm level. Now, we’re kind of thinking about talent in these new, I don’t know, like social network way, the social graph type of way.
In thinking about, I think, attracting talent, if you look at progress studies and think historically, there have been some places, times and places that have had outsized contributions to humanity, ancient Greece, Renaissance, Italy, Dutch Golden Age, turn of the century of Vienna, what made a lot – not all of these. But what made a lot of these places what they were is basically, previously oppressed people being somewhat unleashed or unlocked, or bringing some new set of knowledge.
So, with Renaissance Italy, what happened was the Byzantine Empire fell. A lot of the Greek scholars who worked in the Byzantine Empire were like, “Oh, no, went to Italy, brought their knowledge and books and then boom, Renaissance.” If you look at the Dutch Golden Age, Sephardic Jews being oppressed and the Inquisition. You look at turn of the century of Vienna, it was previously oppressed Jews being freed and opened up. If you look at the Harlem Renaissance, it was African Americans who fled what was effectively apartheid in the south. It’s not like New York at the time was some deacon of tolerance. But it was far more tolerant and far more open than like, literally, apartheid, I don’t know, Missouri or whatever.
You do have these openings of talent that occur when previously oppressed people are all able to move to a single place and have a lot of ideas. I think, how you think about attracting talent to a city, you want several things. One, you just want it to be somewhat affordable. On one extreme, you can be Monaco, and Monaco is basically a retirement community for rich people. There’s nothing wrong with that. Fine, it works. But you’re not going to get a set of great ideas or a set of great companies out of Monaco, simply because the structure of it does not allow that. If you look at Paris, in the 1920s, a lot of American writers were in Paris. You had Hemingway, you had Fitzgerald. Why? Because the franc at the time was extremely weak, so the dollar went very far, and the Americans were like, “Hey, we can live there for cheap and write our books.”
So, you want this accessibility to the up-and-comers, the new generation that might be able to push the frontier. I think you’re not going to compete with New York for amenities. You’re not going to compete with London for amenities. So, you have to think of what margins can we compete, and they’re the margins you can compete are probably going to be attracting young talent by being relatively affordable. It’s going to be attracting different parts of different scenes, whatever that might be, and figuring out how you can plant seeds within these different networks that scale over time.
Minneapolis, for example, has a lot of Somalis. Why do Somalis, from a very hot country, live in one of the coldest states in the US? The answer is because, I don’t know, 50, 60 years ago, one of the Somalis went and had a job there, and then the next Somali migrate was like, “All right, my cousin lives there, my brother lives there, my uncle’s best friend lives there.” Whatever it is, then you just get this chain migration where people go because that’s where the social network is, that can support them in a very new environment.
Similarly, in thinking about talent attraction, it’s tapping into these networks, figuring out where the talent arbitrage opportunities are, where are high talent, people who aren’t being rewarded for their talent, because of high housing costs, or because of bad governance. How do we tap into those networks, and then bring those people here and start that virtuous cycle that scales up over time?
Kurtis: How did the individuals involved in organizing Zuzalu, including yourself, go about local community engagement? It was situated in Montenegro. You were in a place, there was a preexisting small resort town, how did you go about local community engagement?
Mark: Yes, so part of the reason Montenegro was chosen is because the government wanted to host Montenegro, and there were existing relationships with the Montenegrin government. That helped expedite passports for some Chinese citizens, for South Africans. They weren’t able to expedite as many as they wanted, but that initial engagement helped.
Second is there’s a new political party in Montenegro called Europe Now, that is run by millennials that is relatively forward leaning, that wants to embrace some of these new cool ideas, and Zuzalu it was a way to bring a lot of people working on these interesting ideas like longevity, like AI, crypto, et cetera, to help expose them to some of the leaders in Montenegro and figure out, all right, how can Montenegro become a hub for some of these places.
That being said, there, I think could have possibly been more engagement. Part of the challenge with these events is, it was a bit, I guess, exclusive, in a sense that you need to know somebody or know somebody who knew somebody, who wasn’t like this was blasted on Internet where anybody could come. I think in building community, that tends to be a good thing, because there are bad actors who will take advantage if you have social boundaries that are a little bit too loose. There was a group breakfast every day, and that breakfast would have been a lot less pleasant if homeless people were showing up to take advantage of it. That just would have detracted from the vibe.
So, the question I think, here, and then two, was in a five-star resort. Three, like if you wanted to be a full-time resident, you need to say the full two months, so it wasn’t cheap. It did have a relatively high time commitment for people staying the entire time. So, I think the question is how to build that community while also building local relationships? It doesn’t really matter if it’s just a two-month window. However, if it is a more permanent community that you want to build, then I think, it is critically important to engage the locals. Figuring out how to not just allow the locals to benefit, but to make them feel like they are part of the project. They are, in some ways, the core of the project because you are their guests when you are working on this type of development. Figuring out how to build that dynamic is really critical to making it a sustainable, open place to live, and not somewhere that has this kind of underlying tension of these foreigners are coming in, and taking our jobs, or not respectful of our history, or whatever dynamic often happens when you have large migration to a new place.
Kurtis: You mentioned the Montenegrin government a bit in your answer. So, was there a role for the host government in the overall success of Zuzalu?
Mark: I mean, expediting fees beyond that.
Kurtis: So, with pop-up cities, the connotation is almost by definition, temporary. You alluded to this in your last answer. Are you thinking or any of the other Zuzalu organizers thinking about how to make such a community more long-lived and sustained over time? If so, how are you doing that?
Mark: Last night, I was in – I’m in Austin now, and I went to an event with two of the Zuzalu organizers who live in Austin, and they were talking about how they could bring some of the lessons of Zuzalu to Austin, which obviously has a much more permanent beauty. I think, you see this also in SF with, for example, the neighborhood that I mentioned, which is an intentional community effort in SF to co-locate a lot of people within a square mile.
So, there are people who are sometimes directly inspired by Zuzalu, and sometimes in overlapping social circles and interests, who are trying to think about how to build communities intentionally a little bit longer term. How do you build those social networks? How do you attract interesting people? How do you punish bad actors? All of that stuff, that’s required to have a functioning community.
In terms of making Zuzalu more permanent, I don’t think that’s in the immediate plans for the organizers. But I do think that a lot of the lessons can be adjusted for something more permanent. As I was discussing previously, this would be things like much more heavy logo engagement. It would, I think, require having a project that people do want to live long term, and few people are going to want to live long term in a five-star resort. It might be nice, but you’d get bored very, very quicKurtisy, and you’d also run out of money pretty quicKurtisy. How do you create the environment that is much more amenable to this kind of longer-term project? Then, how do you see the community in a way that can interact with the locals effectively, but also be kind of a dynamic element that moves forward and preserve some of that unique nature, that unique culture that that community can bring?
Kurtis: This is just me, why the name Zuzalu? Where did it come from?
Mark: It’s AI generated.
Kurtis: This was by Vitalik, or by one of the organizers or what?
Kurtis: So most organic cities they have, let’s call it a Dickensian nature about them. There’s often a tale of two cities or three or four or five cities, depending on the various social groups and communities that make up the city, and each of these different social groups, it fits into a different place on this status hierarchy. How do you think about keeping status hierarchies flat over time in order to maximize things, like spontaneous encounters and interactions, and all these other benefits of agglomerating a bunch of smart people together?
Mark: Yes. This is one of the somewhat unique things about Silicon Valley, for example, is that the status hierarchy is a lot more flat than many other cities. Because that is a function of the economic environment where people can make a startup that’s very, very successful in a short number of years. So, there’s the possibility that even if the guy’s a college dropout, or whatever, if they’re smart enough, they could build something very successful, and so you might want to be a part of that, and that keeps that hierarchy flat.
I think, Vitalik, also, by the unique nature of his personality, is able to keep a flat status hierarchy. He’s not really somebody who seeks power or authority. As he, sometimes self describes it, he’s kind of lazy, and so, delegates a lot of work to other people. That keeps a we’re open environment. I think for the first month of Zuzalu, what happened is just because the friction was to enter was so high, nobody really knew what it was, and he had to take two months off, and that’s kind of a headache. Whereas Montenegro, that caused a sense of openness.
After my event, which will happen at approximately in one-month mark, the network’s dates and new cities conference, I think that started to be a bit of a change at that point, for several reasons. One, we had, I think, one of the first large inflows of visitors like, 100, 120 visitors. That weekend, previously the inflows were much smaller. So, that large inflow of visitors changed the dynamic. And two, we started getting kind of high-status people that word started to spread, and some of them started to show up. High-status people, even if they are half as nonhierarchical norms the same time just because people want to be around them, that changes the dynamic a bit, and making sure that transmitting a culture to 100 people will become for three or four days is just like really, really difficult. The dynamics of high-status people that people want to be around, also change the dynamic.
So, I think you have to be quite intentional about the culture. You have to figure out, “All right, who are we going to reward? And who are we going to like socially sanction?” You have to do those things continuously to help keep the culture set, right? You have to think about culture setting more as a gardener and not as a carpenter. A carpenter will build a building, this wood goes there. This other piece of wood goes here. Where a gardener, you plant the seeds, you trim around the edges, but fundamentally, you’re not doing it. You’re just kind of setting the conditions within which it can emerge.
A lot of it is dependent on just like the initial culture setting. Who are the first movers? A lot of it’s based on the organizers of a high-status people, like who they bestow status upon, and who do they subtract status from? And how does that set the tone and the stage more broadly,
Kurtis: Your description of carpenters tells me you’ve done a lot of carpentry in your life, Mark.
Mark: I’m very good with my hands. This piece of wood here, that piece of wood there.
Kurtis: Okay, shifting gears a bit. What is Braavos Cities?
Mark: Braavos Cities is a company incorporated, I think, about a year ago to pursue basically a new city opportunity in the Caribbean. What happened is two years ago, concerned resident on an island reached out to me and I was like, “Oh, holy shit, this has a lot of land. It has decent infrastructure, and the government seems willing to do business. A good location.” These things that, I think, are relatively unique.
One thing that I perhaps differ from some other folks in the charter city space is the importance of location. When I think about new city development, obviously, you need a lot of land and needs to be unencumbered. Then, two is you need population. There’s two kinds of global migration patterns now that you can tap into. One is rural to urban, in the Global South, largely in Africa, where there is a rapidly urbanizing population, about one billion new residents over the next 30 years in Africa that you can tap into that need new urban spaces.
The second is Global South to Global North. There’s a poll 70 years ago that estimated 750 million people would move to a new country if they could. My guess is most of those people who would be open to moving to a new country want to move to like a nice, rich, new country. I don’t think that many Zambians are like, “I want to go to the Democratic Republic of Congo.” But a lot of Zambians might think, “Hey, maybe South Africa or maybe United Kingdom or maybe the US.” There’s this pent-up demand for high skilled or just any skilled migration to high income countries. But the supply the number of available openings in those countries is relatively low, especially for low skilled migrants. So, you need a location that has sufficient land that can also tap into one of these global migration trends, and that has a government that’s willing to have that type of development in their country and hopefully has access to decent enough infrastructure, that you limit the initial infrastructure investment substantially, just because building an airport is extremely expensive. Building a port is extremely expensive. And if you can piggyback off existing infrastructure, you can lower startup capital cost by an order of magnitude or more.
So, what are we doing right now, we’ve met with the Prime Minister a handful of times. We’re looking to acquire this asset that we believe we can turn into a city and build some pretty cool stuff off.
Kurtis: This is kind of tangential. But as you were talking about when you have these international migrants, the places they tend to want to move to are pretty nice places in the Global North. That got reminded of some of the work you did as an advisor for some Hong Kongers in the Victoria Harbor Group. Ivan Ko and his team. It didn’t strike me at the moment because the concept of a network state didn’t exist when that happened. But would you say that was a bit of a network state project in a way?
Mark: Yeah, I think so. I kind of joke that you need a religion, but you don’t really need a religion, you just need strong civic culture with persecution. I haven’t looked at the recent migration statistics from Hong Kong recently. But if you look at the ones from like late eighties, to early nineties, because the UK agreed to hand Hong Kong over in ‘87. I think it was almost like over 5% of their population left, and at times was like 1% annually that was leaving, because a lot of Hong Kong residents either escaped from communist China or their parents escaped, and so, they were like, “Wait, you’re going to give the communists power over us? Like they tortured my dad. I’m going to move out, understandably.”
So, you have that persecution, and you have that strong shared identity that allows you to coordinate it to a single place. That was the bet with Victoria Harbor Group, was that the new wave of China cracked out would lead to mass migration, and with an effective coordination, you could bring a lot of them to a specific place. I think that that was incorrect, to the extent that we thought we might be able to get more government support and expedited planning permissions and procedures, but we were unable to get that, and so transformed into a bit more of a traditional real estate developer.
Kurtis: Your work at the Charter Cities Institute before Braavos City. So, Mark is founder and now chairman of the Charter Cities Institute. I took over from him as executive director. So CCI, our whole thing is around poverty alleviation. That’s not necessarily what Zuzalu is about, or network states, or some of the other new cities stuff you’ve been up to recently. So, square that circle for us. How are the two related? Are you interested in both one or the other? Talk a little bit more about that?
Mark: Yes. I mean, I think poverty alleviation is very important. A lot of people in the world are still pretty poor, and making them less poor, eventually, hopefully, rich is a good thing. At the same time, I think the thing that I’ve been increasingly thinking about recently, is just pushing the frontier. Obviously, this helps, because new technology, and innovation is good at the frontier. But what I’ve become increasingly convinced of is that the memes from the new frontier are also very important for everywhere else. So, there’s this kind of joke in development circles, where the US will go and lecture you on women’s rights, and China will go and build you a road, which I think has a degree of truth. The US does have some very good programs. PEPFAR, for example.
But in general, our aid has put much less infrastructure, much less things that would lead to sustained economic growth, and much more might be described as broadly ideological. I think, part of that is just as the US has become rich in the postindustrial society, we’ve forgotten and discounted the value of economic growth. Our ideology is, to a certain extent, a luxury belief that we now like to export instead of good, hard capital. But I do think this is how memes spread.
Another example is, I don’t think a single country in the world that human challenge trials for COVID.
Kurtis: I don’t think so, no.
Mark: Where with COVID, it killed a huge number of people. It shut down the world economy for a year or two, and there were a handful of things that could have been done that would have expedited vaccines and therapies tremendously. One example is just the greatest success of COVID was probably operation warp speed, which explicitly threw out the rulebook for government procurement and all of this stuff. You actually saw some UK officials later get prosecuted for throwing out rule books, and it’s like, “Look, you should throw out the rulebook when, like, thousands of people are dying every day. Procurement rules, who cares? Let’s stop the people from dying.”
So, you did have that large success, but something like human challenge trials, which is based on a kind of first approximation, is like, okay, people can volunteer to get sick. If you’re young and you’re healthy, the long-term risk of getting sick is very low. Two, you can use dosages to make sure it’s a relatively low dose to the person getting sick. That’s a way to get information on the vaccines much more rapidly and rolled out the vaccines more rapidly. And potentially, I haven’t looked at this recently, but that probably could have saved tens of thousands of lives. The fact that not a single country adopted it implies to a certain extent, this global anesis, this global sclerosis on willingness to adopt new ideas, even in very tough external circumstances that has made me value the frontier, not just for the immediate returns of better technology, of better lives for rich people broadly defined, or everybody in the US is basically rich from a global standard. Those things are, I think, important, but also just like the anesis, I think it’s also very important that I think is quite undervalued, and just having a country at the frontier that has a somewhat coherent decision-making process, and a somewhat coherent way of making things a little bit better.
Kurtis: So, somewhat related, but distinct question, how is Braavos Cities both related to and different from the Charter Cities Institute?
Mark: Sure. So, I mean, one is just the org structure. CCI is a nonprofit. A 501(c)(3). Braavos Cities is a for-profit company. Two, Charter Cities Institute was established to build the ecosystem for Charter Cities. At the time it was established, there was a lot of energy and interest in Honduras. The purpose of the Charter Cities Institute was to diversify Charter Cities away from a single person or a single country. Also, to diversify to Africa, just because, if you’re looking at where urbanization is happening, that’s where people are moving to cities, and Africa is where a lot of that is happening. I think the Charter Cities Institute has been relatively successful on those fronts, in terms of what kind of diversifying the movement also means is just bringing new partners to the table, as well as working with governments and new city developers to develop what might be a replicable model.
So, I think CCI has also been helpful on that front. One of the projects that Kurtis, you’re leading working on, is in Zanzibar, where I see one of the key challenges as how we drop the price point for your new city development to something that’s affordable for the average Zanzibari. So, one of the frequent critiques of new cities is that they’re only for rich people. This is true to an extent. If you look at many of the new city projects, they pay architects and designers way too much money to have really pretty pictures and then build it for rich people, basically gated communities. Not all projects. One of the projects we’ve worked a bit with is that what goes on in Honduras, which is basically a gated community for poor people, because Honduras is a very violent country. While rich people are able to build gates on their neighborhood, a lot of lower income people can’t. So, how do you build a development that is a price point that’s accessible to people on the lower income end of the spectrum, and how do you combine that kind of price point as amenities with a level of safety where people can let their children play outside. Where they can talk on a cell phone outside. Where they can enjoy a lot of things that people in safe environments take for granted. But in unsafe environments, you’re just are physically able to do it. It would just be a very bad idea, given their risk associated.
One of these challenges that we’re facing that hopefully Zanzibar can help to unpack is how do we actually have a model for urban development that can be affordable to people at $1,000 per capita income. What does that look like in terms of infrastructure provision, in terms of housing, in terms of business? And how can we create that framework, that also allows one to two percentage point higher growth over an extended time period to have the people be a lot less poor over time. I guess, just to clarify, one to two percentage points over the surrounding region. So, if the country is growing by 3%, and you’re growing at 4% to 5%, and that compounds and eventually are hopefully a lot less impoverished, middle income, potentially upper income.
So, I think that’s how, I guess part of what CCI is looking at, is like, how to create the model, how to push the price point down, how to make it affordable. Here what we’re looking at with Braavos, on one hand, it’s easier because it’s much more – we’re targeting income levels that are much higher where the capital markets exist. It’s a bit easier to kind of structure and raise capital. It’s a bit easier to pay attorneys when you have that average house sale. That’s an order of magnitude or two, higher than what Zanzibar might have. Then, I think two, is just also having this flagship project, I think can help change how people think about charter cities.
One of the challenges, if you just look at any kind of new space, new industry, it’s never validated until there’s like a big public win. Sometimes this is an exit, like an IPO, or a sale. Sometimes it’s an obvious public success, like launching a live rocket into space. But something needs to validate like this is real. This is worth people putting their time and capital in. I think charter cities has really struggled with that, where there’s been a few incremental successes, but none of that really blow the socks off of everybody, or anybody can just look and say, “Wow, that’s it.” Here, what I’m hoping is that the project we’re working on can be that, can open a lot of those doors, can have a demonstrating effect, that this is a model that works that can attract capital, that can employ a lot of people, that can make people’s lives better. And then we can take some of those learnings to other places and help accelerate some of the projects already on the ground there.
Kurtis: One of the ways I think about the distinctions between Braavos and CCI is this distinction between ketchup growth on the one hand, and frontier growth on the other. So, economists often invoke this production possibilities frontier and poor countries, developing countries are very far within that production possibilities frontier. Richer countries are usually on are very close to the frontier, doing a lot of innovation and whatnot. So, what CCI is focused on is those low income and low and middle-income countries far within the frontier, and you can push towards the frontier as one of those countries, oftentimes by just emulating and looking at what rich countries did in terms of policy and governance, and all these other things, and that’ll kind of quicKurtisy allow you to catch up. Whereas what it sounds like you’re looking at with Braavos is a lot more at the frontier, pushing the frontier forward, technological progress and growth in that sense.
Mark: Yes. I think, that’s a fair summary.
Kurtis: So, you’re trying to kick start, basically, with this project in the Caribbean you alluded to with Braavos. Basically, you’re trying to kickstart what amounts to a stagnant or somewhat not doing so well town. Talk a bit about how you’re thinking about doing that. How do you start, or should I say, restart an economy?
Mark: Yes, I think the location we’re looking at has fallen on tough times. Part of that’s because of bad luck. Some hurricanes, part of that just because of a lack of trust between some key stakeholders that’s prevented some of the investment and some of the policies from being pushed forward.
The key to jumpstarting any economy is figuring out what there is a comparative advantage in. This is the Caribbean, so there are nice beaches. So, their comparative advantage is in tourism. What you need to do is partner with several large resorts, bring a lot of tourism in that keeps the government happy, because their job is great. It keeps the locals happy, because there’s jobs created. It increases the number of flights, because now there’s more demand for visiting the island. That’s, I think, how you got that virtuous cycle started. This location we’re looking at, I think, has the opportunity for a lot more tourism. I think you want to pair that with what might be described as some magic internet dust. Maybe that’s Zuzalu or similar events. But how do you get some of these very creative, very smart people to spend time there, maybe for a weekend, maybe for a week, maybe for a few months? How does it become a destination where you can attract these type of people. These people aren’t going to drive the economy. But I do think they can create this dynamic element that otherwise cities are lacking. If you look at San Francisco, for example, less than 10% of people work in tech, another 10% of people that work in tech, less than 10% of them are doing something interesting. It’s probably less than 1% at San Francisco, which is arguably the most interesting city in the world is actually doing anything interesting.
So, you don’t need these magic internet people to be a major percentage of the population. But having them as a small percentage of the population can help define culture, can help define certain industries that might scale and become much larger businesses in a decade or two. Two, can also help set the narrative for who you are for what you’re thinking about, because these people tend to write a lot. They tend to have relatively extensive social networks. Thinking about the tech influencers, people like Scott Alexander or Tyler Cowen, getting folks like that engaged to help tell your story can serve to really build, I think, a cool, interesting narrative that can compound over time and become a very interesting place to live.
Lastly, just as a purely selfish reason, I like living with interesting people, so I’m going to want them to move there too. Theby long-term economics would be driven by, for lack of a better way to say it, immigration arbitrage. The H-1B application went from 200,000 to 700,000, 780,000 over the last five years. They’re capped at 85,000 annually, so you’ve got a Delta of almost 700,000 people who want to be in the US who American companies want to hire, who are unable to legally come to the US.
If you go to Google and say, “Hey, Google, you apply for 10,000 H-1Bs visas annually”, you only got 2,000 open campus and we guarantee everybody gets a visa. It’s a few hours from New York and our less from Miami, that ends up attracting a lot of people, where you effectively compete with Canada, but on lower housing prices, that are weather and lower taxes.
Kurtis: Yes, it’s interesting what you said about maybe less than 1% of the SF population is working on anything interesting. Yet still, that tiny fraction is able to permeate the broader city culture, such that it’s one of the most interesting and dynamic cities in the world. Basically, it’s saying you don’t need a lot of Da Vincis, and Brunelleschis, and [inaudible 00:45:38] to get Renaissance Florence, most of Florence were poor people. But you get a few of them and they’ll have surprising ramifications for the entire city as a whole.
One of the perennial questions with new city developments in charter cities, and you alluded to this before is the host country governments. A lot of their disappointment in past projects in the charter cities space, like Honduras, you talked about largely been the result of governments that are no longer interested in supporting the projects. So, how are you in this Caribbean project? How are you thinking about working with government to mitigate that risk?
Mark: I think you’d have to work with them from the beginning. If you look at Honduras, Honduras, the initial law was passed in a post constitutional crisis where the military put the President on a plane and shipped him to Costa Rica. Now, the President was trying to run for a second term, which was constitutionally bad, and Congress and the Supreme Court both turned on him. So, it’s a tough situation, Was it a coup? Military kicks out government, but military also kicks out the President. The military also has the support of Congress and Supreme Court.
So, I don’t think it’s worthwhile playing semantics. It was definitely a constitutional crisis. Anytime you pass a law, especially a law as substantial as charter cities law, and in the immediate aftermath of a constitutional crisis, there will be some questions about legitimacy. Two, is there was one party that passed it, but it wasn’t even the entire party that supported it. It was only a handful, like five or six people in the party that really supported it. Then, as soon as the opposition party won, this became a easy way to attack the party that was previously in power. Because the party previously in power, there wasn’t even widespread support for this law, when we concentrated support. It became, I think, quite tough for some of the projects on the ground.
That being said, they do appear to have reached a holding pattern where they seem optimistic that they can outlive the current administration, and then get started with a new administration, call it restarted. So, I think that dynamic definitely exists, and I think that would be a strong indication that charter cities can survive even with a relatively hostile government. But it does also demonstrate how I think having the right initial conditions is critical. So, what this looks like in practice is one, just strong engagement with the government, as well as potentially opposition party from the beginning. Figuring out how to ally yourselves both with the people, empowering people that might be even empowering five or maybe even 10 years. No reason to get on their bad side.
Two, is just creating a lot of local jobs. Democratic governments get reelected by creating jobs. So, if you can help them create jobs, the politicians will like you when they are up for reelection, and that requires focusing on certain industries that are much more labor intensive than other industries. For example, I was discussing with somebody and they were talking about creating a blockchain hub. I was like, “I’m not opposed to that. However, the guy was a politician. Like if you want to get reelected, you should create a lot of jobs and that’s not going to be a blockchain.” Blockchain jobs are not very labor intensive, and two, blockchain coders are very easily able to get up and go to a new place if they want. So, you need jobs that are a bit more rooted, that create a lot more jobs for every million dollars invested or whatever metric you want to use.
The third, I think, is figuring out how to engage not just the government, the local community, but also the business community. How do you get the business community in the host country to align yourself with your interest, whether that’s investing directly in the project, or whether that’s investing in different subsidiaries of the project, aligning yourself with the business community so that the business community can ensure that the government plays nice with you in the future.
Last, there are some legal mechanisms you can use. For example, maybe the country is a signatory to a treaty that prevents them from expropriating your asset. Or perhaps if you are doing a large infrastructure investment, you can make that investment conditional upon a bilateral treaty with the sovereign that is investing that can help protect some of the concessions that keep your city a dynamic place moving forward.
So, there’s a handful of ways you can create these long-term interests a lot, and then you can give the country, for example, some equity interest in the city government or the management company or whatever vehicle might be appropriate for that. You have to be flexible depending on the specific conditions. But it’s all about creating a shared understanding, aligning long-term interests, and making sure that every party to the development can meaningfully benefit from it.
Kurtis: Ideally, this charter city that you’re working on. Ideally, it grows very rapidly, and rapid growth is often tricky to manage. Scaling is extremely hard. A city of 10,000 people is a totally different beast than a city of 100,000 people is a totally different beast than a million people. So, how do you think about scaling?
Mark: All of this, I think, depends on the host country, on how many people they want to invite in. My preference is to bring as many people as possible because big cities are cool. But as we’re ultimately going to be the guests and/or partner of the government, we’ll have to work closely with them to determine what those targets actually are. I think, at least in this particular instance, the immediate reaction from the local population, the government will probably be happy because the economy has been depressed for over 20 years. As soon as there’s some semblance of job creation investment, I think people will get quite excited about it.
Second, what we’d want to do is a targeted repatriation campaign, to attract people who used to live on the island, and maybe have moved to other islands, or to the US or Canada or the United Kingdom, to come back as we create opportunities. Then three, I think, is making sure that there is some degree of local integration. This obviously, depends on the type of person. If you’ve got a banker from New York or as a second home that he visits a month, a month and a half out of the year, there doesn’t need to be much local integration, because he’s not spending very much time there. However, if you have people who are relocating with their kids, or with their families, or even by themselves for a long period of time, you do want to make sure you don’t have this kind of tiered system where the locals are in service sector jobs, and then the expats and foreigners are being waited on by the locals.
The short term, it’s fine, that creates jobs. But long term, you don’t want these class elements, because I think that ends up creating a degree of resentment and minimizes the city from reaching its potential. Then lastly, I think, you want to consider the urban for the city. What this means is, depending on the population targets, these will require different numbers of new buildings being built, and given the location, we would want to ensure that they’re built in a manner to minimize potential future climate risks. That does imply certain types of building, as well as density to minimize the infrastructure cost of those mitigation mechanisms.
Kurtis: Other than your Caribbean project, what charter city project are you most excited about and why?
Mark: Zanzibar, because the slogan of the Charter Cities Institute like lifting tens of millions of people out of poverty. If we actually have a model that can return capital, that can help decrease urban poverty, we can grow that out and scale it out pretty quicKurtisy to a lot of other places, and I think do a lot of good in this world.
Kurtis: Just to end, if people want to learn more or get involved with what you’re up to and the Caribbean project and all the stuff we chatted about, Zuzalu, how do they do that?
Mark: Twitter, @MarKurtisutter, or my email, [email protected].
Kurtis: Awesome. Well, that is all my questions. Thanks for the chat, Mark. Appreciate it.
Mark: Great. Thanks for having me.
Kurtis: Thanks so much for listening. We love engaging with our listeners, so please always feel free to reach out. Contact information is listed in the show notes. To find out more about the work of the Charter Cities Institute, please follow us on social media, or visit chartercitiesinstitute.org.